Gov. Gretchen Whitmer on Tuesday signed House Bill 4001 into law, which boosts a tax credit for low-wage workers and rolls back the state’s retirement tax.

The legislation, coined the “Lowering MI Costs” plan by Democratic lawmakers, overhauls tax changes made by then-Gov. Rick Snyder, a Republican, in 2011.

The new law increases the Earned Income Tax Credit — which lawmakers interchangeably call the Working Families Tax Credit — from 6% to 30% of the federal level, retroactive to 2022. This means qualifying Michiganders could claim a credit worth 30% of the federal amount on their taxes.

This increase, which comes after the state in 2011 cut the EITC from 20% to 6%, is expected to benefit approximately 700,000 Michiganders annually earning about $57,000 or less, according to the Whitmer administration. Those individuals would see an additional $600 per year from the EITC boost, according to an analysis from the Michigan League for Public Policy.

The law also phases out the state’s retirement tax over four years — a move that follows Snyder in 2011 signing highly controversial legislation establishing Michigan’s retirement tax that applies a 4.25% income tax on pensions. According to Whitmer’s office, this repeal could save about 500,000 households approximately $1,000 a year.

Democratic lawmakers wanted the plan to include $180 “inflation relief checks” for Michigan tax filers, but those will not be issued following Republican legislators blocking efforts to do so. The legislation that the governor signed on Tuesday includes calls for the $180 checks, but only if the law took effect by April 18. Democrats were unable to enlist enough Republican support for that to happen because the state would have used about $800 million from the state’s General Fund to issue the checks, and that spending could have averted an automatic income tax cut due to a 2015 law that ties the income tax, currently 4.25%, to the state’s General Fund. Some legal experts have said that the Legislature overstepped its authority with that 2015 legislation.

Because of the state’s soaring revenue last year, that income tax may drop to 4.05% — something which Republican lawmakers want to see. Michigan currently has an approximately $9.2 billion budget surplus, including a $5.1 billion surplus in the General Fund and a $4.1 billion surplus in the School Aid Fund. About $5.8 billion of that is for one-time use.

The new law also allows the state to use up to $500 million a year in corporate income taxes to fund the Strategic Outreach and Attraction Reserve Fund, a program that Michigan uses to attract high-profile businesses to the state. That may only be done if corporate income tax revenue exceeds $1.2 billion. The law stipulates this SOAR funding only pertains to fiscal years 2023, 2024 and 2025.

Under the new law, the state will annually put $50 million of the corporate income tax revenue in the Michigan House and Community Development Fund and another $50 million in the Revitalization and Placemaking Fund.

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