Michigan tax relief bill signed into law by Whitmer; here's who benefits

LANSING, Mich. (FOX 2) - Michigan Gov. Gretchen Whitmer signed a new tax package into law Tuesday which includes a boosted tax credit for working families and rolled back tax on seniors.

It also came with a major concession after Democrats failed to secure enough votes for $180 rebate checks. Taking its place is a reduction on citizen's income taxes.

The legislation passed the Senate last week, which repeals the retirement tax for seniors and expands the earned income tax credit, which drastically increases the amount of money that families on fixed incomes with kids receive when they file their taxes.

Whitmer campaigned on the changes to the tax code last year before Democrats took control of the legislature. Their thin majorities opened new opportunities for the party for several issues like gun reform, abortion, and labor laws.

However, Whitmer has called for the two tax policies to be the first big bills to sign into law as part of her second term.

"Back in 2011, the retirement tax was slapped on, and the Working Families Tax Credit was gutted to balance the budget. A single bill dealt a critical blow to people’s finances," Whitmer wrote on Facebook. "Seniors had money that was promised to them taken out of their hands. Working families who were a missed paycheck away from poverty had a lifeline pulled away. It was wrong.

"Today, we are making it right."

MORE: Gun safety bills get long-awaited hearings in Michigan as momentum for reform builds

The tax changes will cost the state hundreds of millions of dollars in revenue. However, the rollback isn't expected to impact the state's budget since it's going into the next fiscal year thanks to a massive bump in federal funds from the pandemic.

Here are the changes that Michigan residents can expect:

Earned Income Tax Credit

The new law increases the amount of money that working families receive as a percentage of the federal Earned Income Tax Credit. Currently, the state provides 6% of the federal EITC; the new tax law boosts the credit to 30% of the federal EITC.

The extra funds add up to about $550 on average for 700,000 eligible households.

The Citizens Research Council compiled the difference in dollar amounts that families will see before and after the passage of HB 4001.

Single with Two Eligible Children

Someone that makes $20,000 a year and has two kids would get $370 at the 6% rate and $1,849 at the 30% rate
Someone that makes $40,000 a year and has two kids would get $119 at the 6% rate and $594 at the 30% rate

Single with no Eligible Children

Someone that makes $10,000 a year would get $30 at the 6% rate and $149 at the 30% rate
Someone that makes $15,000 a year would get $7 at the 6% rate and $35 at the 30% rate

Married with Two Eligible Children

Someone that makes $20,000 a year would get $370 at the 6% rate and $1,849 at the 30% rate
Someone that makes $40,000 a year would get $192 at the 6% rate and $982 at the 30% rate

The state will forego $415 million a year in funds.

Rollback of Retirement Tax

The second prong of Whitmer's tax package is a repeal of taxes on retirement income that were enacted in 2011.

Under the new policy, eligible seniors and other citizens can deduct a certain percentage of their income from taxes. By 2026, someone's entire retirement or pension benefits will be exempted by taxes.

Tax year 2023: aged 65 or older; 25% exemption of retirement income
Tax year 2024: aged 62 or older; 50% exemption of retirement income
Tax year 2025: aged 59 or older; 75% exemption of retirement income
Tax year 2026: everyone; 100% exemption of retirement income

The state will take a hit from the rolled back tax.

According to the Citizens Research Council, rollbacks in 2023 will take $50 million away from the state. In 2024, that number rises to $210 million, then $375 million in 2025, and $515 million in 2026.