Additions to Income
Line 1: Enter gross interest, dividends, and income from obligations or securities of states and their political subdivisions other than Michigan. Add this income even if it comes to you through a partnership, S corporation, estate, or trust. You may reduce this income by related expenses not allowed as a deduction by Section 265(a)(1) of the Internal Revenue Code (IRC).
Line 2: Enter the deduction taken for self-employment tax on your federal return and for other taxes on or measured by income, such as your share of city income tax paid by partnerships or S corporations, or your share of the taxes paid by an estate or trust.
Line 3: Use Michigan Adjustments of Capital Gains and Losses (MI-1040D) and related Michigan Sales and Other Dispositions of Capital Assets (MI-8949) only if you have capital gains or losses attributable to: (1) an election to use Section 271 treatment for property acquired before October 1, 1967; (2) the sale or exchange of U.S. obligations which cannot be taxed by Michigan; or (3) the sale or exchange of property located in other states. If you reported gains on U.S. Form 4797 on property acquired before October 1, 1967, or located in other states, adjust the gain on the Michigan Adjustments of Gains and
Losses From Sales of Business Property (MI‑4797). Enter gains from the Michigan column of MI-1040D, line 12, and MI-4797, line 18b(2). Instructions are with each form.
Line 4: Enter losses from a business or property located in another state which you own as a sole proprietor, a partner in a partnership, a shareholder in an S corporation, or as a member of a pass-through entity. If your business is taxed by both Michigan and another state, the loss must be apportioned. You must attach a Michigan Schedule of Apportionment (MI-1040H).
Line 5: Enter the net loss from the federal column of your MI-1040D, line 13, or MI‑4797, line 18b(2) as a positive number.
Line 6: Enter the gross expenses from the production of oil and gas or the extraction of nonferrous metallic minerals (subject to Michigan severance tax) to the extent deducted in AGI. You must also subtract the related gross income on line 19.
Line 7: Enter the amount of NOL deduction (NOL carryforward) used to reduce AGI.
Line 8: Enter the total of the following (attach a schedule if necessary):
• Add, to the extent not included in AGI, the amount of money withdrawn in the tax year from a Michigan Education Savings Program (MESP) account, including the MI 529 Advisor Plan (MAP), if the withdrawal was not a qualified withdrawal as provided in the MESP Act. You may first exclude any amount that represents a return of contributions for which no deduction was claimed in any prior tax year.
• Refund received from a Michigan Education Trust (MET) contract. If you deducted the cost of a MET contract in previous years and received a refund from MET during 2014 because the MET contract was terminated, enter the smaller of: (1) the refund you received or (2) the amount of the original MET contract price including fees which you deducted in previous years.
Subtractions From Income
NOTE: Part-year and nonresidents, subtract only income attributable to Michigan (Schedule NR, column B) that is not included on line 13.
Line 10: Enter income from U.S. government obligations (e.g., Series EE bonds, Treasury notes, etc.), including income from U.S. government obligations received through a partnership, S corporation, or other pass-through entity. This subtraction must be reduced by related expenses used to arrive at AGI.
Investment companies that invest in U.S. obligations are permitted to pass the tax-free exemption to their shareholders. If income from U.S. government obligations exceeds $5,000, attach a copy of your U.S. Schedule B listing the amounts received and the issuing agency. Capital gains from the sale of U.S. government obligations must be adjusted on your MI‑1040D.
Line 11: Include military and Michigan National Guard retirement benefits here and on Schedule W, Table 2. Also report any taxable Tier 1 and Tier 2
railroad retirement benefits. Other qualifying public or private retirement benefits must be reported on the Michigan Pension Schedule (Form 4884) and Schedule 1, line 25.
Line 12: Enter the gains from the federal column of your MI‑1040D, line 12, and MI-4797, line 18b(2). See instructions for Schedule 1, line 3 on page 11.
Line 13: Income Attributable to Another State. Nonresidents and part-year residents, complete Schedule NR. See instructions on page 50. Attach federal schedules. Business income that is taxed by Michigan and another state must be apportioned. You must complete and attach MI-1040H. Income reported on the MI-4797 and carried to the MI-1040D is business income, potentially subject to apportionment. Capital gains from the sale of real property or tangible personal property located outside of Michigan must be adjusted on MI-1040D. Michigan residents cannot subtract salaries and wages or
other compensation earned outside Michigan. However, they may be entitled to a tax credit for income tax imposed by government units outside Michigan (see page 9).
Residents may subtract:
• Net business income earned in other states and included in AGI, and
• Net rents and royalties from real property or tangible personal property located or used in another state.
Line 14: Compensation received for active duty in the U.S. Armed Forces included in AGI should be entered here and on Schedule W, Table 1. Enter only the taxable portion of Social Security and Military pay included on your U.S. Form 1040, or your U.S. Form 1040A. Do not include your total Social
Security benefits.
NOTE: Compensation from the U.S. Public Health Service, contracted employee pay and civilian pay are not considered military pay.
Line 15: Renaissance Zone deduction. To be eligible you must meet all the following requirements:
• Be a permanent resident of a Renaissance Zone designated prior to January 1, 2012, for at least 183 consecutive days
• Be approved by your local assessor’s office
• Not be delinquent for any State or local taxes abated by the Renaissance Zone Act
• File an MI-1040 each year
• Have gross income of $1 million or less.
If you were a full-year resident of a Renaissance Zone, you may subtract all income earned or received. Unearned income, such as capital gains, may have to be prorated. If you lived in the Zone at least 183 consecutive days during 2014, you may subtract the portion of income earned while a resident of the Zone. If you are a part-year resident of a Zone, you must complete and attach a Schedule NR to your MI-1040. (See “Special Note” on the back of Schedule NR, page 50.)
Certain Renaissance Zones began to phase out in 2007. The tax exemption is reduced in increments of 25 percent during the Zone’s final three years of existence. If you are a resident of a Zone that is phasing out (check with your local unit of government), you must reduce your deduction as follows:
• 25 percent for the tax year that is two years before the final year of designation as a Renaissance Zone
• 50 percent for the tax year immediately preceding the final year of the designation as a Renaissance Zone
• 75 percent for the tax year that is the final year of the designation as a Renaissance Zone.
For additional information regarding qualifications for the Renaissance Zone deduction, call the Michigan Economic Development Corporation at (517) 373-9808.
Line 16: You may subtract Michigan state and city income tax refunds and homestead property tax credit refunds that were included in AGI. Note to farmers: You may subtract (to the extent included in AGI) the amount that your state or city income tax refund and homestead property tax credit exceeds he business portion of your homestead property tax credit.
Line 17: Michigan Education Savings Program (MESP). You may deduct, to the extent not deducted in calculating AGI, the total of all contributions less qualified withdrawals and rollovers (compute the contributions, withdrawals and rollovers separately for each account) made during 2014 by the taxpayer in the tax year to accounts established through the MESP, including the Michigan 529 Advisor Plan (MAP). The deduction may not exceed $5,000 for a single return or $10,000 for a joint return per tax year. There are numerous education savings accounts available from other states and investment companies, but Michigan only allows a tax deduction for contributions to accounts established through MESP and MAP.
Line 18: Michigan Education Trust (MET). Y ou may deduct the following:
• If you purchased a MET contract during 2014, you may deduct the total contract price (including the processing fee).
• If you made a charitable contribution to the MET Charitable Tuition Program during 2014, you may deduct the total contribution amount. You should have received a receipt from MET to confirm the amount. All charitable donations will go toward providing scholarships to former foster care students attending Michigan colleges.
• If you purchased a MET payroll deduction or monthly purchase contract, you may deduct the amount paid on that contract during 2014 (not including fees for late payments or insufficient funds). You will receive an annual statement from MET specifying this amount.
• If you have terminated a MET contract, you may deduct the amount included in AGI as income to the purchaser.
Line 19: Subtract the gross income from the production of oil and gas or the extraction of nonferrous metallic minerals (subject to severance tax) to the extent included in AGI. You must also add back the related expenses on line 6. Attach copies of applicable federal schedules.
Line 20: Tax Agreement Tribes: A “Resident Tribal Member” (Member must be on the list submitted by their Tribe to the State of Michigan.) of a federally
recognized Indian tribe that has an active tax agreement with the State of Michigan may subtract certain income that is included in his or her “Adjusted Gross Income” identified on line 10 of the MI-1040. Such exempt income may include income derived from wages, interest, and pension income. For a list of agreement tribes, go to www.michigan.gov/taxes and select “Income Tax” and then “Native American.” A list of tribes’ names will be available;
click to access the tax agreement and proceed to Section IV.
Non-Tax Agreement Tribes: If your tribe is not listed, your tribe does not have an active tax agreement with Michigan. Non-agreement members, see Revenue Administrative Bulletin 1988-47 for guidelines in determining exempt income that may be subtracted on line 20.
NOTE: Michigan income earned while living outside of your Agreement Area (see your tribe’s agreement for a description of your Agreement Area) or Indian Country (as defined under 18 U.S.C. 1151 for Non-Agreement Tribes) may not be subtracted from Michigan AGI.
Line 21: Net Operating Loss (NOL) Deduction. You may only deduct the Michigan NOL. Your Michigan NOL must be reduced by the Michigan apportionment of the domestic production activities deduction that was used to arrive at your 2014 AGI. You must attach Form MI-1045, pages 1 and 2 of your federal return and all supporting schedules.
Line 22: Miscellaneous subtractions only include: • Any portion of a qualified withdrawal from an MESP account, including the MAP, to the extent included in
federal AGI. NOTE: Any amounts not included in AGI or that are already deducted on the U.S. Form 1040 to arrive at AGI do not qualify for this subtraction. Attach a copy of your federal return.
• Benefits from a discriminatory self-insured medical expense reimbursement plan, to the extent these reimbursements are included in AGI.
• Losses from the disposal of property reported in the Michigan column of MI-1040D, line 13, or MI-4797, line 18b(2).
• Amount used to determine the credit for elderly or totally and permanently disabled from U.S. Form 1040 Schedule R, line 19. Attach a copy.
• Holocaust victim payments.
You may not subtract:
• Pension and retirement benefits on line 22. See Form 4884
• Itemized deductions from U.S. Schedule A
• Sick pay, disability benefits, and wage continuation benefits paid to you by your employer or by an insurance company under contract with your employer
• Unemployment benefits included in AGI, except railroad
unemployment benefits
• Contributions to national or Michigan political parties or candidates
• Proceeds and prizes won in State of Michigan regulated bingo, raffle, or charity games
• Distributions from a deferred compensation plan received while a resident of Michigan
• Lottery winnings. (Exception: installment payments from prizes won on or before December 30, 1988, may be subtracted.) Include installment gross winnings as reported on your Form W-2G, box 1, and enter on your Schedule W, Table 1.
Lines 23C and 23F: Benefits From Employment Not Covered by the Federal Social Security Act (SSA).
SSA exempt employment is not covered by the federal SSA, which means the worker did not pay Social Security taxes and is not eligible for Social Security benefits based on that employment. Almost all employment is covered by the federal SSA. The most common instances of pension and retirement benefits from employment that is not covered by Social Security are police and firefighter retirees, some federal retirees covered under the Civil Service Retirement
System and hired prior to 1984, and a small number of other state and local government retirees. Federal retirees hired since 1984 and those covered by the Federal Employees’ Retirement System are covered under the SSA. Recipients born between January 1, 1946 and December 31, 1952 who receive pension or retirement benefits from employment with a governmental agency that was not covered by the federal SSA are entitled to a greater retirement/pension deduction or Michigan Standard Deduction. If you or your spouse are SSA exempt this increases your maximum allowable deduction by $15,000.
Answer the questions below to determine if you should check boxes 23C and/or 23F.
Line 23C:
1. Was the older of the filer or spouse born between January 1, 1946 and December 31, 1952?
Yes: Continue to question 3.
No: Continue to question 2.
2. Did the filer receive retirement/pension benefits from a deceased spouse born between January 1, 1946 and December 31, 1952?
Yes: Continue to question 3.
No: Stop. You are not eligible to check box 23C.
3. Did the filer receive SSA Exempt retirement/pension benefits?
Yes: Check box 23C.
No: Continue to question 4.
4. Did the filer receive SSA Exempt surviving spouse benefits?
Yes: Check box 23C.
No: Stop. You are not eligible to check box 23C.
Line 23F:
1. Was the older of the filer or spouse born between January 1, 1946 and December 31, 1952?
Yes: Continue to question 3.
No: Continue to question 2.
2. Did the spouse receive retirement/pension benefits from a deceased spouse born between January 1, 1946 and December 31, 1952?
Yes: Continue to question 3.
No: Stop. You are not eligible to check box 23F.
3. Did the spouse receive SSA Exempt retirement/pension benefits?
Yes: Check box 23F.
No: Continue to question 4.
4. Did the spouse receive SSA Exempt surviving spouse benefits?
Yes: Check box 23F.
No: Stop. You are not eligible to check box 23F.