How Much Is Payroll Tax in Michigan?

Payroll taxes are contributions to government programs, levied on wages and salaries, encompassing both amounts withheld from an employee’s pay and direct employer contributions. Understanding payroll taxes is important for businesses, especially in Michigan, which involves federal, state, and local tax obligations. Each level of government mandates distinct contributions, influencing overall financial responsibilities.

Federal Payroll Tax Obligations

Federal payroll taxes apply across the United States. These include contributions under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). FICA taxes fund Social Security and Medicare, which provide benefits for retirees, the disabled, and healthcare for the elderly.

For 2025, Social Security tax is assessed at a rate of 6.2% for both the employee and the employer, totaling 12.4% of wages. This tax applies to an annual wage base limit of $176,100. Medicare tax has a rate of 1.45% for both employee and employer, with no wage base limit, applying to all covered earnings. An additional Medicare Tax of 0.9% is withheld from employee wages exceeding $200,000, though employers do not match this additional amount.

Federal Unemployment Tax Act (FUTA) taxes contribute to a federal fund that supports state unemployment programs. This tax is paid solely by employers at a rate of 6.0% on the first $7,000 of each employee’s wages. Employers can claim a credit of up to 5.4% against their FUTA tax liability for timely payments into state unemployment insurance programs, reducing the FUTA rate to 0.6%.

Michigan State Payroll Tax Obligations

Michigan imposes its own payroll tax obligations on employers and employees. These include state income tax withholding and state unemployment insurance contributions. Employers are responsible for accurately calculating and remitting these amounts to the Michigan Department of Treasury.

Michigan has a flat-rate state income tax that employers must withhold from employee wages. For the 2025 tax year, the individual income tax rate in Michigan is 4.25%. This flat rate applies to all taxable income. Employees complete a Michigan Withholding Exemption Certificate (Form MI-W4) to inform their employer of any exemptions or allowances.

State Unemployment Insurance (SUTA) is funded exclusively by employers in Michigan. SUTA rates are experience-rated, meaning they can vary based on an employer’s history of unemployment claims. New employers are assigned a standard rate, which then adjusts over time based on their specific experience. For 2025, the Michigan taxable wage base for SUTA is $9,000 per employee. This means employers pay SUTA taxes only on the first $9,000 of an employee’s annual wages.

Local Payroll Tax Obligations in Michigan

Some cities in Michigan levy their own income taxes. These local income taxes are not statewide but apply only in specific municipalities. Employers operating or employing individuals in these cities are responsible for withholding and remitting these local taxes.

Several Michigan cities have local income taxes, including Detroit, Grand Rapids, and Lansing, among others. The rates for these city income taxes vary significantly and often differ based on whether the individual is a resident or a non-resident who works within the city limits. For example, the City of Detroit has a resident income tax rate of 2.4%, while non-residents working in Detroit pay a rate of 1.2%. Other cities with local income taxes impose a rate of 1% for residents and 0.5% for non-residents. Employers must accurately determine the residency and work location of their employees to ensure proper withholding of these city-specific taxes.