Michigan tax rules for surviving spouses let you file a joint state return for the year your spouse died, preserve favorable retirement-income treatment in the years that follow, and claim several credits and exemptions that can eliminate most or all state tax on your pensions, Social Security, and home. The flat 4.25% rate does not change with your filing status, but the subtractions, exemptions, and thresholds behind that rate absolutely do, and the choices you make on the first return after a death often set the terms for every year afterward.
Filing Status the Year Your Spouse Dies and After
Michigan requires the same filing status you use on your federal return.1Michigan Legislature. Michigan Taxpayer Guide For the year of death, you can file jointly as long as you did not remarry before December 31. That joint return reports both spouses’ income for the whole year and gives you the full joint-filer thresholds for every Michigan subtraction and credit.
For the next two tax years, you may qualify federally as a Qualifying Surviving Spouse if you have a dependent child living with you and have not remarried. Michigan honors that status and continues the joint-filer thresholds through the transition. When the two-year window closes, or if you never had a qualifying dependent, you file as single. Your personal exemption drops from two to one (the exemption is $5,800 per person for 2026), and the caps on retirement-income subtractions typically fall with it.
Signing the Final Return
If no personal representative has been appointed by a court, sign the joint return yourself and write “filing as surviving spouse” in your deceased spouse’s signature area.2Internal Revenue Service. Filing a Final Federal Tax Return for Someone Who Has Died If a personal representative has been appointed, both of you sign. The same rule applies to the Michigan return.
Retirement and Pension Income: The Biggest Lever
Michigan’s retirement-income subtraction under MCL 206.30 sorts taxpayers into three tiers by birth year, and placement in the right tier can remove most of your pension income from the state tax base. For joint filers, the older spouse’s birth year controls the tier.3Michigan Legislature. Michigan Compiled Laws 206.30 – Taxable Income
The Three Tiers
- Born before 1946: Public pension income from federal, state, or local government employment is fully deductible. Private pension and retirement income is deductible up to an annually adjusted cap, which was $65,897 for a single filer and $131,794 for a joint filer for the 2025 tax year. The cap adjusts each year with the Consumer Price Index.4State of Michigan. Revenue Administrative Bulletin 2026-1
- Born 1946 through 1952: The maximum retirement-income subtraction is $20,000 single or $40,000 joint. At age 67, that same amount becomes a standard deduction usable against all types of income, not just retirement pay.4State of Michigan. Revenue Administrative Bulletin 2026-1
- Born after 1952: No retirement subtraction until you reach age 67. At that point, you can take a $20,000 single or $40,000 joint standard deduction against all income.3Michigan Legislature. Michigan Compiled Laws 206.30 – Taxable Income
Stepping Into Your Spouse’s Birth Year
If your deceased spouse was born before you, Michigan lets you claim the retirement subtraction based on their birth year instead of your own. A widow born in 1960 whose husband was born in 1944, for example, can use the pre-1946 tier rather than waiting until age 67 for any subtraction at all. The Department of Treasury allows this when three conditions are met: you filed a joint return the year your spouse died, you claimed a retirement or Social Security subtraction on that joint return, and you have not remarried.5State of Michigan. Surviving Spouse
If you have already reached age 67, you can choose whichever produces the larger deduction: the standard deduction based on your own age, or the retirement subtraction tier based on your deceased spouse’s birth year.5State of Michigan. Surviving Spouse The reason to get the first joint return right is here: skipping the retirement subtraction that year can disqualify you from this rule for every year that follows.
Some income your spouse earned before death arrives afterward: a final paycheck, an accrued bonus, or a required retirement distribution. The IRS treats this as income in respect of a decedent, and whoever receives it reports it as taxable income.6eCFR. 26 CFR 1.691(a)-1 – Income in Respect of a Decedent Because the Michigan return starts with federal adjusted gross income, those amounts flow through, but retirement distributions received after death can still be subtracted under the tier rules above.
Social Security Survivor Benefits
Michigan exempts Social Security income entirely. If your survivor benefits show up in federal adjusted gross income, you subtract them back out on the Michigan return, so the state owes you no tax on them no matter how much other income you have.
Federally, the picture changes. Once your combined income exceeds $25,000 as a single filer, up to 85% of your Social Security benefits may be taxable.7Social Security Administration. What You Need to Know When You Get Retirement or Survivors Benefits That threshold is easy to cross after you lose joint-filer status, so many surviving spouses see their federal tax on Social Security climb even though the Michigan side stays at zero.
Inherited Property and the Home Sale Exclusion
Property you inherit from your spouse takes a new tax cost basis equal to its fair market value on the date of death.8Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent Stock your spouse bought for $30,000 that was worth $200,000 at death comes to you with a $200,000 basis. Sell it the next day at $200,000 and you owe no capital gains tax.
Michigan is a common-law state, not a community property state, so on assets you and your spouse owned jointly, only the deceased spouse’s half receives the step-up. Assets titled solely in your spouse’s name receive a full step-up.
Selling the Family Home Within Two Years
If you sell your primary residence within two years of your spouse’s death, you can exclude up to $500,000 in capital gains from federal tax rather than the $250,000 that normally applies to single filers. You must not have remarried, and you must meet the ordinary two-year ownership and residence tests.9Internal Revenue Service. Publication 523, Selling Your Home After that window closes, the exclusion drops to $250,000. Combined with the step-up in basis, most surviving spouses selling the family home pay little or no capital gains tax when they act inside the two-year deadline.
Homestead Property Tax Credit
The Homestead Property Tax Credit reimburses you for the share of your property taxes that is high relative to your income. For the 2026 tax year, you qualify if total household resources are $71,500 or less.10State of Michigan. Michigan Taxpayers Encouraged to Check Eligibility for Homestead Property Tax Credit Total household resources is a broader figure than taxable income and includes nontaxable Social Security, public assistance, and certain other amounts.
The credit equals 60% of the difference between your property taxes (or 23% of rent, for renters) and 3.2% of your total household resources, up to a maximum of $1,900.1Michigan Legislature. Michigan Taxpayer Guide You claim it by filing Form MI-1040CR with your state return. If your deceased spouse was a service-disabled veteran, expanded rules may apply, including a higher reimbursement percentage, provided you have not remarried and still live in the home.11Michigan Legislature. Michigan Compiled Laws 206.520 – Credit for Property Taxes on Homestead
Principal Residence Exemption
The Principal Residence Exemption is separate from the Homestead Credit. It removes the 18-mill local school operating tax from your home.12Michigan Legislature. Michigan Compiled Laws 380.1211 – Mills Levied for School Operating Purposes On a home with a taxable value of $150,000, that’s roughly $2,700 in yearly savings. If your home was already claimed as a principal residence before your spouse died, the exemption continues automatically as long as you still own and live there. Nothing to refile.
If you move out or sell, file Form 2602 with the local assessor to rescind the exemption.13State of Michigan. Claim Requirement – Principal Residence Exemption Rescission takes effect December 31 of the year you file. Skipping this step while the home sits vacant during estate settlement can leave you owing back taxes and interest on the school millage you should have been paying.
Federal Estate Tax Portability
The federal estate tax exemption for 2026 is $15,000,000 per person, following the increase in the One Big Beautiful Bill Act signed into law on August 5, 2025.14Internal Revenue Service. What’s New – Estate and Gift Tax If your spouse did not use their full exemption, portability lets you carry the unused amount forward, potentially sheltering up to $30,000,000 from federal estate tax.
To claim it, the executor files Form 706 within nine months of the date of death, even when the estate is far too small to owe any tax. A six-month extension is available on Form 4768. For estates below the filing threshold, a simplified late election is available by filing Form 706 within five years of the date of death and citing Revenue Procedure 2022-32.15Internal Revenue Service. Frequently Asked Questions on Estate Taxes Once made, the election is irrevocable.16Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Couples with well under $15,000,000 in combined assets won’t owe federal estate tax today, but the paperwork is relatively cheap insurance against future changes in the exemption.
Michigan Estate and Inheritance Tax on Transfers to You
Michigan imposes no practical state-level death tax on what passes to you. The state’s estate tax under MCL 205.231 is a “pick-up” tax tied to a federal credit that was eliminated in 2005, and it has effectively been zero since. Michigan’s inheritance tax statute under MCL 205.201 still exists, but any transfer to a surviving spouse that qualifies for the federal estate tax marital deduction is exempt.17Michigan Legislature. Michigan Compiled Laws 205.201 – Inheritance Tax Bank accounts, real estate, vehicles, and retirement accounts passing to you from your spouse move without any state tax bill.