As Bob Dylan declared, the times they are a-changin’. The tax picture for Michigan retirees remains in flux. The 2024 tax season now brings us the “50% phase in” of Michigan’s new retirement income tax law.

As a refresher, the new law acts as an “overlay” on top of the old law and retirees get to choose the law that treats them best. Year after year, the new law is slowly winning the battle. Here’s how it works.  

Group A: For those born on or before 1945, there is no change. These retirees get to deduct their retirement income up to about $64,000 (single) / $128,000 (married) for 2024. Retirement income includes things like pension benefits and IRA distributions.

Group B: For retirees born in 1946 through 1952, they either get to deduct $20,000 (single) / $40,000 (married) against all types of income or they can use 50% of the new law’s deductions specifically against their retirement income. They can deduct their retirement income up to about $32,000 (single) / $64,000 (married.) Note, this is 50% of what Group A gets to deduct as shown above. They can choose the deduction level that’s best for them.

Group C: For retirees born in 1953 through 1957, they also either get to deduct up to $20,000 (single) / $40,000 (married) against all types of income – with an added catch – or they, too, can use 50% of the new law’s deductions specifically against their retirement income. 

The catch is the old law’s deduction amount is weakened because it is reduced by the taxable portion of their Social Security benefits and their personal exemptions. With each passing year, the new law crushes the old law.

Note, once people reach age 67, they enter into this group. Thankfully, in the years to come, it’ll completely eliminate the next group of younger retirees.

Group D: For retirees born in 1958 through 1962, the old law provides no deduction. The new law wins, by default. For the 2024 tax year, they also get 50% of the new law’s deductions against their retirement income just like the previous two groups.

Group E: For those born in 1963 through 1966, they will have to wait for the 2025 tax year to see the benefits of the third “phase in” of the new law. They get no deduction in 2024.

Group F: For those born after 1966, they will have to wait for the fourth and final “phase in” during the 2026 tax year. They get no deduction in 2024 or 2025.

To recap history, the 2023 tax year phased in 25% of the full deduction and the 2024 tax year is now phasing in 50%. Looking forward, 2025 will bring us a 75% phase in and 2026 will allow everyone to enjoy 100% of the retirement income deduction. I’m looking forward to 2026!

In a surprising move, Congress just repealed two controversial provisions of Social Security that impact millions of retirees who receive “non-covered” pensions that were earned while opting out of the Social Security system. With Biden’s pending signature, the Windfall Elimination Provision and Government Pension Offset will soon be relics of the past and a great set of trivia questions for finance nerds.

The Windfall Elimination Provision (WEP) started way back in 1983 and is all about retirees with non-covered pensions who also happened to earn some Social Security benefits elsewhere at some point in their careers. WEP’s goal was to prevent retirees with sizable non-covered pensions from appearing to be low-income workers in the eyes of the Social Security system.

By design, Social Security replaces more of a low-income worker’s earnings than it does for a higher-income worker. However, appearing to be a low-income worker – while also receiving a healthy non-covered pension – is not the same as actually being a low-income worker. To account for this fact, WEP worked to reduce a “pseudo” low-income pensioner’s Social Security benefit by about $500 per month. This WEP reduction is now gone.

The Government Pension Offset (GPO) is equally long-standing and is all about Social Security spousal benefits and survivor benefits. It was put in place to reduce or eliminate Social Security spousal or survivor benefits for people who also receive substantial non-covered pensions.

As a spousal benefit, you are entitled to the greater of your own Social Security benefit based on your work history or half of your spouse’s benefit. And, as a survivor benefit, you are entitled to the greater of your own Social Security benefit or your deceased spouse’s Social Security benefit. However, for people with non-covered pensions, they might not have earned much, or any, Social Security benefit on their own during their careers. 

Without an adjustment under GPO, these pension-receiving spouses would effectively be viewed as a “stay-at-home” spouse and would automatically be entitled to a benefit based on their spouse’s work record. But, of course, they would receive their own non-covered pension benefit, too.

To account for this appearance of “double dipping”, GPO basically plugs in a person’s non-covered pension “as if” it is their own Social Security benefit. Given the size of some non-covered pensions, GPO worked to reduce or eliminate any spousal and survivor benefits for many pensioners. This GPO reduction is now gone, too.

With GPO and WEP’s repeal, about 3 million affected retirees will begin to receive about $20 billion more in Social Security benefits. On top of that, they are also slated to receive a year’s worth of retroactive benefits. The details on how these retroactive benefits will actually find their way to retirees’ bank accounts is still being worked out. It’s a massive undertaking.

Recent headlines have left me scratching my head so often that it’s starting to leave a mark. Here are a few things that are definitely making me go hmmmm.

As a quick follow up on my most recent column, a few days ago a judge in Texas put a hold on FinCen’s new beneficial ownership (BOI) filing requirement for millions of US businesses. This new government filing was intended to combat tax fraud and money laundering. Nonetheless, it’s been derailed with this new legal ruling that invoked the tone of “Don’t tread on me!” My advice to business owners who haven’t yet done their BOI filing is to remain prepared. If the government wins its appeal, you might have to disrupt your Christmas holiday to get it done in time.

Now, here’s a parting thought for the skeptics out there. Sometimes transparency isn’t just burdensome red tape. Don’t you think it’s sound public policy to do what we can to combat tax cheats and criminal activity?

Speaking of transparency, or complete lack thereof, we’re now just learning that Elon Musk reportedly spent $250 million of his own money during this past election cycle. Amazingly, that estimate is likely on the low side, when all things are considered.

We’ve likely just lived through the nightmare scenario many pundits warned us of when the Supreme Court legalized the injection of an unlimited amount of corporate and private money into our politics. To learn weeks after an election that the richest man on Earth invested this much of his own money in exchange for an unknown level of power and influence is nothing less than alarming.

For members of Congress and for his business competitors, Musk’s growing influence inside government circles feels like an existential concern. They are scrambling to stay in Musk’s favor to benefit from his unelected circle of influence. His appointment as the head of the new Department of Government Efficiency (DOGE) arms him with additional massive, unaccountable power. Musk’s growing influence over major industries and government policies is becoming very clear. When private ambitions start steering public policy so blatantly, it’s hard not to worry about the negative effects of outright crony capitalism. It’s simply not a good economic system.

You might be asking, what does my head-scratching have to do with your money? Well, I suppose it’s to say that we should all prepare for some turbulence ahead and you might want to proactively adjust your investment portfolio. Of course, since the future is always unknown, everything in moderation remains sage advice. But, with the stock market hitting record highs again and again, it’s probably also sage advice to remind you that an ounce of prudence might save you a pound of regret.

If you’re a business owner, you should know by now that there’s a new law that requires you to disclose your ownership details to the government. While this might feel like just another bureaucratic hassle, ignore it at our own peril. With big penalties and fines, this particular hassle deserves your attention! 

The Corporate Transparency Act (CTA) was passed way back in 2021 as part of an effort to combat money laundering, tax evasion, and other financial crimes. It requires that all incorporated businesses report their Beneficial Ownership Information (BOI) to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). That means most LLCs, S-Corps and C-Corps have to comply. For most, the deadline is right around the corner, by January 1, 2025. But if your business was new this year, you were required to file the report within 30 days of your start.

What’s driving all of this? Historically, shell companies have been used to hide illicit activities. In response, the U.S. is catching up to global standards, requiring transparency about who actually owns and controls businesses. While this does feel intrusive, the goal feels justified.

Fortunately, filing your BOI report is easy enough. FinCEN has an online portal (boiefiling.fincen.gov) and the process only takes about 15 minutes. Before you start, you’ll need some essential information: names, addresses and birthdates of all beneficial owners of your business, your EIN, and copies of IDs for everyone.

Not every business is required to file the report. If your company has over 20 employees, generates more than $5 million in annual revenue, the government already knows all about you. Similarly, nonprofits and truly dormant entities with no assets or activity can skip it. But, don’t just assume you are exempted. Check with your advisors.

Unless you are a true do-it-yourselfer, you’ve probably received a lot of mailings about this new filing requirement from your CPA and attorney. For many legal and capacity reasons, many CPAs are not handling these filings for their clients. Many are just referring their clients to attorneys. With the end-of-year deadline fast approaching, be aware that your CPA and attorney could be quite slammed. For most readers, you can certainly do the filing yourself, but if you’re in doubt, you should contact your advisors for some help. 

If you are rolling your eyes after reading all of this, let’s talk more about the penalties. The government isn’t messing around. Stubborn resistance could cost you $500 per day, up to $10,000, and could even lead to criminal charges. Clearly, it’s not worth the gamble for only 15 minutes of minor, emotional pain! Don’t let this slip through the cracks.  

This election has occupied my mind more than it deserved. My experience tells me to ignore the rhetoric and focus only on policy proposals. Yet, I’m equally aware that there is no truly reliable way to predict their impact on the economy and markets. I think most would agree, it’s an exhausting process that feels both wasteful and beneath us. Supposedly, it’ll be over very soon, right? One can only hope.

A few legitimate things have caught my eye, though. Namely, proposals that might impact inflation and future tax policy.

Voters seem confused about inflation. The post-pandemic fever broke and inflation has come down a lot. The global supply of goods and services simply caught up with the surge in pent-up demand after Covid. Inflation is now approaching the Fed’s official 2% target. The fight isn’t over yet, but it’s quite close.

Yet, many voters believe inflation remains sky-high. There’s clearly a fundamental misunderstanding. Declining inflation doesn’t mean prices are in outright decline. That would be called deflation. And believe me, deflation is not a desirable goal, especially for those who owe money. Lenders hoping to be paid back someday don’t want to see deflation, either. Low and steady inflation is the goal for a good reason.

Speaking of debt and inflation, Donald Trump’s campaign is filled with proposed tax cuts. He’s called for zero tax on tip income, zero tax on overtime, the elimination of taxes on Social Security benefits, interest deduction for car loans and large tax cuts for corporations. Recently, he even floated the idea of eliminating all income taxes. All these proposals are expected to be funded by higher tariffs on imports from China and others and faster economic growth. However, trained economists are clear that tariffs are ultimately inflationary and act just like a tax hike.

Kamala Harris has proposed some tax cuts and targeted tax credits, as well. Her proposals are standard fare for a Democratic candidate. These include higher tax credits for those with children, tax credits for business start-ups and first-time homebuyers. Not to be beaten in Las Vegas, however, she also called for the elimination of tax on tips. Her proposals are balanced by higher taxes on corporations and high-income households and, also, faster expected economic growth.

Naturally, neither campaign has informed the public about the cost of their tax proposals’ impact on future federal deficits and our debt burden. It’s about getting the votes, first. Yet, with the 2017 tax cuts expiring in a little over a year, I do think voters deserved a much deeper discussion about tax policy. But, alas, this isn’t the world we live in today.

Despite all the noise, tension and fury, I’ll now add to the unbelievable cacophony of calls, texts, and mailers that we’ve all been receiving: Go vote. It does matter.