How Does Income Tax in Michigan Work?

Michigan’s income tax system involves both a statewide levy and, for individuals residing or working in specific localities, an additional city income tax. This overview aims to clarify how these taxes are structured and applied, providing a general understanding for those subject to Michigan’s tax regulations.

Michigan State Income Tax

Michigan imposes a flat individual income tax rate. For the 2024 tax year, this rate is 4.25% of taxable income. This statewide tax applies to various forms of income. Wages, salaries, interest, dividends, business income, and capital gains are generally subject to this tax.

Residents of Michigan are typically taxed on all their income, regardless of where it was earned. Non-residents, however, are only taxed on income derived from Michigan sources. The Michigan Department of Treasury is responsible for administering the state’s tax laws and collecting these revenues.

Understanding Michigan City Income Taxes

Michigan is among the few states that permit cities to impose their own income taxes. Several cities across the state levy such taxes, including Detroit, Grand Rapids, Lansing, and Flint. City income taxes apply to individuals who reside within the city limits, as well as non-residents who earn income from work performed within the city.

For most cities, residents typically pay a 1% tax rate, while non-residents working in the city pay 0.5%. However, some larger cities have higher rates; for example, Detroit’s rates are 2.4% for residents and 1.2% for non-residents, and Grand Rapids taxes residents at 1.5% and non-residents at 0.75%. These city income taxes are generally collected and administered by each individual city’s tax department, although the Michigan Department of Treasury administers Detroit’s corporate, employer withholding, estates, trusts, and partnership income tax returns.

Common Exemptions and Credits

Michigan taxpayers can reduce their state income tax liability through various exemptions and credits. For the 2024 tax year, a personal exemption of $5,600 is available for each taxpayer and qualifying dependent. Additional exemptions may apply for specific circumstances, such as for individuals who are deaf, blind, or permanently disabled, or for disabled veterans.

The Homestead Property Tax Credit offers relief to eligible Michigan homeowners and renters by helping to offset a portion of their property taxes. For the 2024 tax season, this credit can be worth up to $1,800. Eligibility for this credit depends on factors like total household resources, which must be $69,701 or less, and for homeowners, the taxable value of their home must be $160,700 or less.

Michigan also provides deductions for retirement and pension income, though these provisions are subject to a tiered system based on the taxpayer’s birth year, with a full exemption phasing in by the 2026 tax year. Additionally, the Home Heating Credit assists with heating costs for eligible homeowners and renters, with income limits determining qualification.

Filing Your Michigan Income Tax Returns

Filing your Michigan state income tax return typically involves using Form MI-1040. The standard deadline for filing state income tax returns, for the 2024 tax year, is April 15, 2025, aligning with the federal deadline. Electronic filing, or e-filing, is a common option through commercial tax software or Michigan Treasury Online. Alternatively, returns can be filed by mail, ensuring they are postmarked by the due date.

If a tax payment is due, options include making an online payment via e-check or debit/credit card, though processing fees may apply for card payments. Payments can also be submitted by mail using a check or money order.

For city income taxes, separate forms are generally required and must be filed directly with the respective city’s tax department. Many cities accept a common form, CF-1040, but larger cities like Detroit have their own specific forms. City tax filing deadlines may vary from the state deadline, requiring taxpayers to check with their local municipality.