MPSERS Retirement Tax: Michigan Public Act 4 Pension Tax Phase-Out Explained

What Changed with Public Act 4

Michigan used to tax public pension income at the standard 4.25% state income tax rate — a change introduced in 2011 that blindsided retirees who had planned around a full exemption. Public Act 4 of 2023, as amended by Public Act 24 of 2025, restored retirement-income deductions over four tax years (2023 through 2026); the deduction is limited to an annually adjusted maximum for most filers.

The phase-out works differently depending on when you were born.

The Birth-Year Schedule

Born before 1946: Your MPSERS pension distributions have remained fully exempt from Michigan state income tax throughout — Public Act 4 didn't change anything for this group.

Born 1946 through 1962: The deduction ramped up in stages. For tax year 2024, you could deduct up to 50% of the maximum ($32,020 single / $64,040 joint). For tax year 2025, the deduction increases to 75% of the maximum; this 2025 phase-in also covers taxpayers born through 1966. Starting with tax year 2026, all birth-year cohorts may claim 100% of the applicable annual deduction limit.

Born 1963 through 1966: You were not eligible for the PA 4 deduction in tax year 2024, but qualify for a 75% deduction in tax year 2025. In tax year 2026, all birth-year cohorts may claim 100% of the applicable annual deduction limit.

Born 1967 and after: You were not eligible for a PA 4 deduction in tax year 2025. Beginning in tax year 2026, all birth-year cohorts may claim 100% of the applicable annual deduction limit.

For tax year 2026, the maximum deduction is $67,610 for a single return and $135,220 for a joint return. For most filers, public and private retirement benefits count together toward that limit, so pension income above it may remain taxable. Taxpayers born before 1946 retain the prior unlimited subtraction for public-source benefits. For joint returns, the older spouse's birth year determines the phase-in cohort.

How ORS Handles Withholding

You don't need to file a separate request for the automatic PA 4 withholding changes. ORS adjusts state withholding based on the phase-in rules, filing status, and annual deduction maximum. Your actual tax liability can differ depending on pension amount and other retirement income, so check your pension statement and adjust your withholding in miAccount if needed.

If you want to adjust your Michigan withholding beyond what ORS calculates automatically, you can update your election in miAccount under the tax withholding section. You can't change the state tax rate itself (that's set by law at 4.25% for 2025), but you can elect additional withholding or reduce it if you expect other deductions to offset your liability.

Federal Taxes Still Apply

Public Act 4 addresses Michigan state income tax only. Your MPSERS pension remains subject to federal income tax, and you'll receive a 1099-R from ORS each January. Federal withholding elections (the W-4P equivalent) are also managed through miAccount.

What This Means for Your Retirement Timing

If you retired in 2025 or are retiring in 2026, the phase-in may influence your net take-home, but it shouldn't drive your retirement date. For a single filer with only a $36,000 pension, the 2026 maximum deduction is enough to cover that amount; eligible filers born in 1946 through 1966 also had a $49,422 maximum deduction in 2025. Any tax difference depends on your birth year, filing status, total retirement income, and other deductions.

Your MPSERS pension estimate in miAccount shows gross monthly amounts. To project your actual net, subtract federal withholding, any health insurance premium, and the state tax (if any) based on your birth-year cohort.

For a month-by-month breakdown of how taxes, health premiums, and payout options interact, the MPSERS Retirement Guide walks through the full calculation with worked examples for each plan tier.

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