The Michigan Pension Tax Withholding Guide and proposed administrative relief to the January 1, 2012 application date of the withholding of taxes upon pension distributions presents a very serious challenge to banks doing business with Michigan residents with pension income.
The Michigan Pension Income Tax appears on the surface to be an easy compliance situation. Persons receiving IRA distributions who are born after a certain date and have not reached a specific threshold of income will have taxes withheld and remitted to the State of Michigan. Compliance in practice has become more difficult as most banking institutions require computer software changes to accomplish this withholding. The multi-step qualifier for tax withholding is also triggered by Michigan residents submitting a form Mi –W-4P to ascertain the Michigan residents’ tax status, relative to other providers of taxable or non-taxable distributions. Many banks will not be able to create software systems or configure existing systems to complete the withholding on Jan. 1, 2012. This is due to internal or vendored systems’ inherent construction or computer systems analyst availability.
Michigan Treasury has provided a proposed Administrative Relief to this situation. Treasury seeks the reaction from Michigan bankers concerning this proposed administrative relief. A committee of MBA members will continue discussions with Treasury concerning this issue and will provide banking’s response this week. This is a work in progress; however, the worst scenario at this time is the proposed Administrative Relief.
Further information concerning this emerging issue and your compliance responsibilities will be available to all MBA members on the MBA website homepage or via the MBA Risk, Audit, Compliance Groupsite and discussion board available to all MBA members.