Michigan does not allow distributions from MI 529 for K-12 tuition and deductions for contributions while a resident there. No longer a resident of MI and took a distribution from the MI 529 to pay for K-12 tuition in NC that is current residency and allows 529 distributions for K-12 tuition consistent with the Federal guidelines. A 1099Q was issued and the question is, is the distribution taxable by MI to a non resident?
Correction to my earlier post, MI does allow deductions on 529 contributions while a resident of the state.
No, the distribution is not taxable by Michigan for anyone as long as it is used for qualified expenses.
Please see this about Michigan's 529 plan.
Thanks PattiF. As I understand it, Michigan is one of the 15 or so States that do not allow 529 distributions to be used for K-12 tuition payments, only Colleges etc, and they are considered non qualified for MI state taxes. Since the person is now a resident of NC and not MI (they were a resident of MI for a number of years when the contributions to the 529 were made and deducted on the their MI state tax returns) when the distribution was made and was used for NC K-12 tuitions that does allow 529 distributions for K-12 tuitions, do they have to file a non resident MI state tax return for this distribution? I'm having trouble finding any information that addresses this situation. Hope this clarifies this unusual situation. Thanks
The distribution is income attributable to Michigan sources.
therefore the recipient would need to file a non-resident Michigan tax return to claim that income.
Since it is taxable MI income, the MI rules would apply.
There would be no NC state credit for taxes paid to another state since the NC return will not claim the amount of the distribution because it was used for expenses recognized by NC.
Thanks KrisD15 for your reply. Since a non resident return will be prepared for this distribution along with some other misc mentoring income earned in MI while a resident of NC, can MI 529 contributions made in 2022 be deducted on the MI non resident return even though the person is a resident of NC? Thanks for your help.
Michigan taxpayers may also be eligible for a Michigan income tax deduction on contributions made to MESP up to $10,000 for married couples filing jointly or $5,000 for individuals filing single per year. A Michigan taxpayer is permitted a deduction from Michigan adjusted gross income for a contribution to an account. @SCswede
Thanks MaryK4, your answer agrees with my interpretation and research of the MI MESP but for one point of clarification. Your note referred to Michigan taxpayers and does not distinguish between residents or non residents but just "taxpayers." My opinion is that if a person has MI income and pays Michigan taxes, regardless if they are a resident or non resident, and makes contributions to a MI MESP, those contributions are deductible on the non resident MI tax return. Is that a correct assumption? Thanks.
Yes and no. The yes part is MESP states: A Michigan taxpayer is permitted a deduction from Michigan adjusted gross income for a contribution to an account less any Qualified Withdrawals made during the tax year. Amounts transferred from another 529 college savings plan are not eligible for the Michigan income tax deduction.
MI sch 1 line 17 shows allowed amounts.
The maybe no part for the subtraction, the MI-1040 Book with forms states:
NOTE: Nonresidents and part-year residents, subtract only income attributable to Michigan (Schedule NR, column B) that is not included on line 13.
The program will allow it the deduction it just requires you to be diligent and know you deserve it.
To get the contribution to appear: