Retiring in Michigan: what taxes actually cost you
The short answer
On $80,000 of retirement income, Michigan costs about $7,845 a year across state income, property and sales tax. That ranks 33 of 51, or $1,210 above the median state. State income tax alone is $425, which is 0.5% of gross income.
Run it on your own numbers
The figures above use a reference profile. Change them and every number on this page moves, including the ranking.
How Michigan treats retirement income
Michigan uses a flat 4.25% income tax, so the rate is the same on the first dollar and the last.
Social Security
Not taxed
Pension income
Taxed as ordinary income
401(k) and IRA withdrawals
Taxed above $54,404 from age 67
Capital gains
Taxed as ordinary income
Property tax
Averages 1.54% of assessed value, so $6,160 a year on a $400K home.
Sales tax
State rate of 6%, before any local addition.
Worth knowing: Social Security exempt. Complex pension/retirement rules based on birth year.
Where Michigan sits against the rest
The spread across all 51 runs from $3,280 in Wyoming to $14,004 in Connecticut, a difference of $10,724 a year on the same income.
Five cheapest on these numbers
| State | Total tax |
|---|---|
| Wyoming | $3,280 |
| Nevada | $3,639 |
| Colorado | $4,009 |
| Tennessee | $4,310 |
| Louisiana | $4,678 |
Five most expensive on these numbers
| State | Total tax |
|---|---|
| Connecticut | $14,004 |
| New Jersey | $12,953 |
| Vermont | $12,755 |
| Kansas | $11,108 |
| Minnesota | $10,888 |
Worth keeping in proportion. The gap between the best and worst state here is real money, but it is smaller than the gap between two housing markets, and it is far smaller than the effect of your withdrawal rate. Safe withdrawal rate covers that one.
Common questions
Does Michigan tax Social Security?
No. Michigan does not tax Social Security benefits at the state level. Federal tax on benefits still applies depending on your combined income.
How much tax would a retiree pay in Michigan?
On $80,000 of retirement income with a $400,000 home and $70,000 of annual spending, Michigan works out at roughly $7,845 a year across income, property and sales tax. That ranks 33 of 51, against a median of $6,635.
Does Michigan tax 401(k) and IRA withdrawals?
Yes, above an exemption. Michigan allows $54,404 of retirement income to be excluded, from age 67. Withdrawals above that are taxed as ordinary income.
Is Michigan a good state to retire in for taxes?
Around the middle of the pack. On the reference profile it costs $1,210 more than the median state, and $4,565 more than Wyoming, which is the cheapest. Tax is one input though. Cost of living, housing and proximity to family usually move a retirement budget further than the tax code does.
Retirement taxes in another state
Related: Taxes in retirement, Withdrawal order, Roth conversions, All 51 states.