This week, Governor Rick Snyder signed a package of legislation ensuring Michigan residents can continue to claim the personal income tax exemption on state and local taxes. After passing a federal tax reform at the end of last year, Congress set the value of the federal personal exemption at zero. Since the Michigan Income Tax Act used the taxpayer’s federal return to determine the number of allowable exemptions on state tax returns, the reform effectively eliminated the exemption at the state level.
The House and Senate gave approval to a package of bills at the end of January that remedied the situation. The legislation clarifies Michigan tax payers can claim the deduction, regardless of the number of exemptions at the federal level. Additionally, the reforms increase the amount from $4,050 for tax year 2018 to $4,900 for tax year 2021. The exemption will then increase annually based on inflation. The new law also clarifies that residents in cities with personal exemptions can continue to claim those, as well.
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