Michigan State Income Tax Guide

Michigan’s tax system ranks 12th overall, according to the 2023 State Business Tax Climate Index. If you live, work, do business, or earn income in the Great Lakes state, it can be confusing to understand how the income tax system works since some cities levy additional income taxes with varying amounts for residents and non-residents. That’s why we, as accounting experts, have compiled this list of commonly asked questions about Michigan state income tax for individuals!

Does Michigan Have a State Income Tax?

Yes, Michigan requires the payment of state individual income tax, just like most states in the U.S. If you’re a Michigan resident or earn income from Michigan, you’ll need to pay Michigan state taxes on that income.

What Is Michigan State Tax?

State income tax is a tax levied on any income earned by residents of a particular state or income sourced in that state. Similar to federal income tax that funds the federal government, state tax funds state budgets. In the case of Michigan, it is a tax on income earned or sourced in Michigan.

What Is the Michigan State Income Tax Rate?

UPDATE: In a new statement from State Treasurer Rachael Eubanks, it was confirmed that in 2024, Michigan’s individual income tax rate will see an increase, moving from 4.05% to 4.25%. This change is a reversal from a temporary reduction triggered when legislation was enacted that linked the state’s individual income tax rate to the growth of the general fund relative to inflation.

“State law requires that a very specific calculation be conducted annually following release of the state’s ACFR to determine the individual income tax rate,” confirmed Eubanks. “As anticipated, we found that the conditions were not present for a rate reduction for the 2024 tax year. The tax rate will remain at 4.25%.”

Michigan has what’s known as a flat rate individual income tax. Currently, the Michigan state income tax includes the following rates:

  • 2023: 4.05% individual state income tax rate
  • 2024: 4.25% individual state income tax rate
  • 6.00% corporate state income tax rate
  • 6.00% state sales tax rate

Remember that depending on where you live and work, you may also be responsible for paying local income taxes, but Michigan doesn’t levy any local sales taxes.

What States Have No State Income Tax?

The states that don’t have state income tax include the following:

  • Alaska
  • Florida
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

Although these states don’t collect state income tax, they may still have other types of taxes on income, such as dividends and interest. Be sure to review state tax information to understand your tax obligations.

How Do Michigan Tax Cuts Work?

Recent updates on Michigan tax cuts were announced based on the 2022 State of Michigan Annual Comprehensive Financial Report. It’s estimated that the following tax cut will save average Michigan taxpayers about $50 thanks to Michigan’s state income tax cut of 4.05% for 2023.

In 2015, Michigan passed a law requiring a temporary reduction of state income taxes for any year starting in 2023 when the general fund grows faster than the inflation rate. Due to low unemployment, strong business growth, and a strong economy, Michigan lowered taxes from 4.25% to 4.05% for the 2023 tax year, the lowest rate in the past 15 years.

Do I Have To Pay The State’s Income Tax?

Generally, if you’re a Michigan resident and earned income, the answer is “YES!” You’re required to file a Michigan Individual Income Tax Return (MI-1040) and pay tax on any income you earned in Michigan. However, there are exceptions, such as if you’re not required to file a federal income tax return and fall below certain income limits.

Under certain conditions, you must file Michigan state income tax if you’re a part-year or non-resident resident. This may be the case if you worked in Michigan or had Michigan taxes withheld from wages. Additionally, suppose you collected money from a business activity or fun evenings hitting the casino, playing the lottery, or visiting a licensed horse track in Michigan. In that case, you must file and pay Michigan state income tax.

If you have earned income and fail to file and pay taxes, you’ll be subject to the following late penalty:

  • 5% of the total unpaid tax due for the first two months.
  • An additional 5% of the unpaid tax amount is assessed each month after the first two months.

The state also charges interest on unpaid taxes, which can add up to 25% of the unpaid tax. If left unpaid, you face a slippery slope of consequences. A bill could be sent to collections, and a lien could be placed on your real estate and personal property.

Nerdy Accounting Assistance Is Only a Phone Call Away

Michigan is a great place to live and work, but navigating income taxes can be overwhelming. Because Michigan isn’t one of several no-state-tax states, knowing the tax laws is vital. Doing so ensures you comply with all state income tax requirements, lower your tax bill, and avoid unnecessary penalties. Rather than do the DIY route, it pays to have a CPA prepare your tax. 

CPA Nerds is a Michigan-based firm with a team of nerdy accounting experts. e keep up with all the latest state and federal tax changes, so you never have to worry about IRS headaches or surprises. In addition to tax services, we offer various financial resources, including financial accounting services, management consulting services, real estate, and much more.

If you’re unsure how to do your Michigan state income tax, contact CPA Nerds for accounting assistance today.