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SB 584

Individual income tax: withholding requirements; mandatory withholding requirement by pension administrators; make optional. Amends sec. 703 of 1967 PA 281 (MCL 206.703).

2025-2026 Regular Session Introduced by Mary Cavanagh and 1 co-sponsor

SB 584 makes Michigan tax withholding on pension/annuity payments optional for payors, shifting liability to recipients and possibly lowering automatic state tax receipts.

REFERRED TO COMMITTEE ON FINANCE, INSURANCE, AND CONSUMER PROTECTION
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Bill Summary · SB 584

SB 584 — Summary (Individual income tax withholding by pension/annuity payors)

  • Bill number: SB 584
  • Subject: Individual income tax — withholding requirements (pension/annuity disbursements)
  • Statute amended: 1967 PA 281, sec. 703 (MCL 206.703)
  • Introduced: February 20, 2025
  • Status (at introduction): Referred to committee

Main purpose

SB 584 would change Michigan’s income tax withholding rules to make the existing mandatory state withholding on certain pension and annuity disbursements permissive. In short, payors (pension administrators, annuity disbursers, life insurers, etc.) would be allowed — but not required — to withhold Michigan income tax from pension/annuity payments.

Key provisions and statutory changes

  • Replaces language in MCL 206.703 that requires (“shall”) a person who disburses pension or annuity payments to withhold Michigan income tax with permissive language (“may”), so withholding on those distributions becomes optional for the payor.
  • Retains the current mechanics for how withholding is computed when it is applied: applying the rate prescribed in section 51 to the taxable portion of the payment, and allowing the same proportionate deduction for personal/dependency exemptions in computing the taxable portion.
  • Retains the existing exception that withholding is not required on any part of a distribution that is not expected to be includable in the recipient’s gross income or that is deductible under specified sections.
  • Other withholding provisions contained elsewhere in section 703 (for employers, flow‑through entities, casinos, etc.) appear left intact; the bill targets the subsection(s) addressing pension/annuity disbursers.

Who would be affected

  • Pension and annuity payors: private employers, public pension administrators, insurance companies and other entities that disburse retirement payments — they would gain discretion whether to withhold state tax.
  • Retirees and beneficiaries receiving pension/annuity disbursements: could see less or no automatic state tax withholding on periodic benefits, increasing their responsibility to make estimated payments or settle liabilities at filing.
  • Michigan Department of Treasury and state cash flows: potential changes in withholding collections timing and amounts.
  • Tax compliance/enforcement stakeholders: potential shift in administrative workload (fewer remittances if payors opt out; more individual estimated payment monitoring).

Potential impacts and considerations

  • Revenue timing: optional withholding could reduce automatic at-source collections and increase reliance on estimated tax payments or year-end settlements, affecting state cash flow and potentially increasing underpayment or delinquency risk.
  • Compliance burden: taxpayers (retirees) may need more tax-planning guidance and could face penalties for underpayment; the state may incur additional enforcement or outreach costs.
  • Administrative effect for payors: some payors may stop withholding (reducing their remittance/reporting), while others may continue; systems and payroll processes might require changes if payors alter practices.
  • Fiscal analysis: the bill text does not include a fiscal note; the net revenue and administration effects would need to be estimated by the Department of Treasury or legislative fiscal staff.

Procedure and timeline

  • Introduced Feb 20, 2025 and referred to committee for review. Further committee hearings, amendments, or fiscal analyses may follow; no effective date is specified in the bill text as provided. If enacted, an effective date would be set in the final law.

If you’d like, I can:
- Draft a short fiscal impact checklist of the revenue, compliance, and administrative issues the state should analyze; or
- Produce suggested amendment language to preserve minimum withholding or require notice to recipients if payors choose not to withhold.

Compiled from official sources — confirm details with the bill’s official record.

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