Michigan's new tax on pensions challenged in court

Aug 6, 2013

A class-action lawsuit has been filed on behalf of retired public employees against the state for extending Michigan’s income tax to pensions.

Extending the income tax to pensions was part of a tax overhaul adopted by the Legislature in 2011 that scrapped the Michigan Business Tax.

People born after 1945 started paying taxes on pension income last year.

The lawsuit claims the state broke a promise made in writing to retirees.

The lead plaintiff is a retired school teacher who says state-managed pension funds for teachers and state employees made the promise in their official guidelines and tax information forms.

The lawsuit says retirees made financial plans based on the state’s promise.

The Michigan Supreme Court ruled in 2011 that the pension tax does not violate the state constitution’s protections against breaking contracts, but the retirees say that does not rule out a non-constitutional court challenge.