Individual Income Tax - Change to Credits

Posted on Wed, Aug 24, 2011

In previous blog posts, I wrote about changes to Michigan's pension exclusion where I discussed the three age categories taxpayers will fall into and described what impact it will have on the taxation of public and private pensions. I also discussed a new exemption called the "Senior Income Exemption" which, for the most part, replaces the eliminated pension exclusion. All the changes I discussed are effective January 1, 2012. Additionally, I blogged about the changes to the personal exemption, introducing a new concept -- the phase-out for the personal exemption. The phase-out is based on “Total Household Resources."

In this blog post I will describe the limitation, or  in most cases the outright elimination, of several personal refundable and non-refundable credits.

Effective 1/1/2012 the following changes are made to the following credits:

Non-Refundable Credits:

  1. Eliminated - Credit for city income taxes
  2. Eliminated - Credit for public contributions
  3. Eliminated - Credit for contributions to homeless shelters, food banks, and community foundations
  4. Eliminated - Credit for contributions to medical savings accounts
  5. Eliminated - Credit for donations to the Family Development Program


Refundable Credits:

  1. Reduced - Earned Income Tax Credit from 20% to 6%
  2. Repealed - Excess adoption expense credit
  3. Repealed - Stillbirth credit
  4. Changed - Homestead property tax credit as follows:
    • Household income is replaced by total household resources which excludes losses from business, rentals and royalties and also excludes net operating losses
    • Available only for homes with taxable value of less than $135,000
    • For senior claimants
      - full credit of 100% if total household resources are $21,000 or less and reduced by 4% for each additional $1,000 in total household resources until $30,000 is reached
      - for total household resources of $30,000 to $41,000 senior claimants receive 60% of the credit
    • All other claimants are eligible for 60% of the tax credit
    • Credit phase out begins at $41,000 of total household resources and is reduced by 10% for each $1,000 increase; complete phase-out at $50,000
  5. Still Available - alternative credit for eligible service person/veteran
  6. Repealed - the film credit for wage withholding
  7. Repealed - the credit for automobile donations
  8. Repealed - the credit for college tuition and fees
  9. Repealed - the credits for historic rehabilitation plans certified after 2011

If you did not pull out a Michigan Form 1040 as you read through this blog post, go back, get a 2010 MI-form 1040 and compare it to the list above. You will note the sweeping changes to the credits effective January 1, 2012.  Many of you have clients who benefitted from the non-refundable credits and the Homestead property tax credit; they will face an increase in their personal tax liability as a result of the changes made to the law.

Tags: State and Local Tax, Ron Kaley, Individual Income Tax