The taxable portion of a non-qualified distribution on your federal return is computed on a portion of the earnings only.
The Michigan State return starts with the federal AGI, so no additional income needs to be added to the federal AGI for that non-qualified distribution.
It says to add back the taxable earnings if not included in federal AGI (but they are) and that you can exclude return of your contribution (that was) , so no adjustment to federal AGI for that distribution.
If you previously took a state deduction for the returned contribution, that may need to be claimed on the state return.
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