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Title: Michigan Income Tax Overhaul Is Going To Cost You, And Maybe Your Favorite Nonprofits
Source:
Kalamazoo Gazette
URL Source: http://www.mlive.com/politics/index ... gan_prepares_for_a_tax_cr.html
Published: Sep 18, 2011
Author: Rosemary Parker |
Post Date: 2011-09-18 13:30:00 by Brian S
Keywords: None
Views: 690
Michigan taxpayers have the rest of this year to catch a break from the state for donating to charity, having children, paying a lifetime of taxes, serving the public and owning a house. After that, it’s close to zip. Dozens of changes face taxpayers following reforms lawmakers adopted this year. They add up to this: Individuals should be prepared to cough up more income tax as they carry much of the burden previously shouldered by businesses. Michigan’s tax rate will drop from 4.35 percent to 4.25 percent in 2013. But that is more than offset by the elimination or reduction of many long-standing deductions and exemptions, as well as new taxes on pension income. The goal, said state Department of Treasury spokesman Terry Stanton, is to make Michigan’s personal income tax structure simpler and fairer by eliminating special considerations. Another objective: Increase revenues by $1.42 billion. The money is needed to help offset the sweeping business tax cut that will eliminate $1.65 billion its first full year. Supporters say it is a fair trade that will create jobs, a benefit to everyone. "Job providers who no longer have oppressive double taxation (on both business and personal income) will be able to invest in capital, add jobs and grow their business," said Tricia Kinley, the Michigan Chamber of Commerce’s senior director of tax reform. Critics call it far from fair. "The retirement tax increases, combined with $1.5 billion of budget cuts, gave our retirees higher taxes and worse services," said AARP Michigan President Eric Schneidewind. It’s also not a done deal. The Michigan Supreme Court is weighing whether parts of the tax hike are constitutional, particularly as it applies to retirees’ pensions and wealthier taxpayers. Oral arguments were Sept. 7. Rulings could come as early as October. How much will it hurt households? What you think of the tax reform could depend on your birthdate. If you were born after 1952 and are, say, an average retired autoworker with an annual pension of $32,000, you would pay $1,400 a year in unanticipated tax, according to AARP estimates. If you were born from 1946 to ’52, you would pay nothing as a joint filer since there is a $40,000 exemption. A single filer gets a $20,000 exemption and pays on the remainder. And a taxpayer born before 1946? No state tax. "The ones calling me are the ones who know they will be immediately affected," said Tim Powers, a Plainwell certified public accountant. How much other reforms will hurt individual taxpayers is hard to nail down, added CPA David Jewell. "There are a million different factors," said Jewell, a tax manager for the Kalamazoo office of Yeo & Yeo CPAs and Business Consultants. He said many people can expect to pay more or see a smaller refund. Together, modifying the public/private pension exemption is projected to add $343 million in fiscal 2012-13, the largest block of revenue from the tax changes, according to an analysis by the Michigan Senate. Another group is also taking a hard hit: low-income wage earners. Those who qualify for the Michigan Earned Income Tax Credit – nearly 800,000 filers – will get back an average of $143, losing about $280 on their 2012 refunds. Reduction of the credit will add $261.6 million to state coffers in 2012-13. Despite the court consideration of the pension tax, many other provisions are pretty well set. The best taxpayers can probably hope for is to adjust their household budgets, Jewell said. "Generally speaking, there’s going to be a little pinch across all economic backgrounds, regardless of income level," he said. For instance, the $600-per-child deduction disappears, parents will likely end up owing a little more than they have paid in the past, Jewell said. If they are homeowners, they might owe even more. Michigan’s homestead credit provides a maximum $1,200 rebate on property tax bills that exceed 3.5 percent of household income. Under the old law, households with incomes less than $82,650 qualified for the credit. The new law drops that to $50,000. Charities flinch, too Individual taxpayers will take the brunt of the changes, of course, but food banks, public universities, foundations and other nonprofits could suffer when the tax credit on donations disappears. "In Michigan it has been a sweet deal, a dollar-for-dollar credit on the Michigan return," Powers explained. Currently, for a married couple filing jointly, a $400 gift to an eligible charity gets a Michigan tax credit of $200. Add the federal deduction, and the actual cost of that $400 gift is just $76. "While I couldn’t tell you how many take the credit, it is indicative that many plan to by the amount of their gift," said Theresa Bray, executive director of the Allegan County Community Foundation. Justin Fast, outreach and advocacy manager for the Food Bank Council of Michigan, said the council strongly opposed ending the credit, saying it greatly enhanced the capacity of emergency food providers for more than 20 years. The council also opposed reduction of the Earned Income Tax Credit, he said, because more than a third of the households served by food banks are the working poor that credit was designed to help.
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