William Blaha breathed a sigh of relief when Michigan lawmakers exempted most senior citizens from a new state tax on retirement income.
But the retired pilot's relief turned to frustration this month when he learned his annuity fund administrators went ahead and subtracted $117 in state taxes from his monthly check, despite his age exemption.
Now the burden is on Blaha, 80, to retrieve his money.
"It's confusing," said Blaha, of Kewadin. "Nobody had a chance to do anything about it. They just went ahead and took the money."
Blaha is among perhaps thousands of Michigan seniors confronted with lower pension or annuity payments because of improperly deducted state taxes. The change followed lawmakers' approval of Gov. Rick Snyder's plan to tax retirement pensions.
On Jan. 1, the state began taxing retirees at its 4.35 percent income tax rate, though those born before 1946 are supposed to remain tax exempt. Taxpayers born between 1946-52 are allowed an exemption on the first $20,000 of their income for an individual or $40,000 per couple.
Social Security, railroad and military pensions also are exempt. There is no exemption available for taxpayers with a $75,000 annual single income or $150,000 income for a couple.
Blaha's retirement administrators in late December notified him of their intent to withdraw state tax from his monthly annuity. A family member helped him research online and Blaha learned he needed to provide his retirement fund a new state tax form -- a MI W 4-P -- to continue his tax exempt status. He faxed that form to the company the next day.
But his payment this month came up short because of the state tax, an amount that about equals his monthly medication costs. When he contacted his annuity administrator, a representative told him he could reclaim his money next year, after he filed his 2012 income tax return.
"They're making me wait for my money for a year -- what sense does that make?" Blaha said.
Jere Brown, of Traverse City, struggled through a similar scenario with his mother-in-law, who's 86. One of her pension funds alerted her in December that state taxes would be withheld from her check, but state taxes weren't removed from her other pension payments, Brown said.
"When you're 86 years old, things befuddle you," he said.
Brown is helping her sort through the problem and suspects other families are in the same fix.
"The burden of this doesn't fall to the pensioner; it falls on the children of the pensioner," Brown said. "I don't think it's fair to the senior citizens."
State lawmakers approved retirement tax changes in May. Department of Treasury officials said they posted advisories on the tax law changes, including the pension tax changes, on the Treasury website beginning in August.
State officials also contacted various retirement plan administrators in early October and notified organizations such as AARP to advise its members of changes.
"That was as quickly as we could get the information pulled together," said Terry Stanton, a state Treasury spokesman. State officials decided to work through financial institutions that make retirement payments, rather than contacting individual taxpayers.
"They're the ones who have to get the information to the pensioners," Stanton said.
Fred Goldenberg, a Traverse City financial consultant who specializes in senior citizen benefits, said he's received several calls about retirement tax changes.
He suspects state taxes are being improperly withheld from many Michigan seniors who were born prior to 1946, some likely without their knowledge.
"There's a lot of confusion," Goldenberg said.
Goldenberg termed the state's handling of the senior tax changes "very cumbersome." The state placed a big burden and expense on companies that administer retirement funds to determine seniors' eligibility for exemptions, he said.
"The Treasury Department has done very little to eliminate the confusion, other than to put the onus on the pension administrators," he said.
Accountant Brad Niergarth, a partner in the Dennis, Gartland and Niergarth accounting firm in Traverse City, said his office recently received about a dozen calls about pension tax troubles. He expects to hear more complaints as seniors receive 2012 retirement payments and as they try to figure out tax returns.
"We think we're going to have people who've overpaid (state taxes) and underpaid," Niergarth said.
Coming Sunday: In Business, read Fred Goldenberg's take on the new Michigan Pension Tax.
