How Much Tax Is Taken Out of a Paycheck in Michigan?

Understanding a paycheck involves more than just subtracting taxes from gross earnings. Paychecks include various mandatory and voluntary deductions that contribute to the difference between gross pay and take-home amount. These deductions originate from federal, state, and sometimes local authorities.

Federal Tax Withholding

Federal taxes represent a significant portion of paycheck deductions for all employees across the United States. These include federal income tax and contributions under the Federal Insurance Contributions Act (FICA). Employers are responsible for withholding these amounts from each paycheck and remitting them to the appropriate federal agencies.

Federal income tax withholding is determined by information on an employee’s Form W-4, “Employee’s Withholding Certificate.” This form guides employers on how much tax to deduct based on the employee’s filing status, dependents, and any additional income or deductions. The federal income tax system uses progressive tax brackets, meaning higher income levels are taxed at higher rates. Employers use withholding tables from the Internal Revenue Service (IRS) to calculate the amount to withhold, aiming to approximate the employee’s annual tax liability.

FICA taxes fund Social Security and Medicare programs, providing benefits for retirement, disability, and healthcare. The Social Security tax rate is 6.2% for both employees and employers, applied to earnings up to an annual wage base limit of $176,100. Earnings above this limit are not subject to Social Security tax.

The Medicare tax rate is 1.45% for both employees and employers, with no wage base limit, applying to all earnings. An additional Medicare tax of 0.9% applies to individual earnings exceeding $200,000, or $250,000 for married couples filing jointly.

Michigan State Tax Withholding

Beyond federal obligations, individuals working in Michigan also face state-level income taxes. Michigan employs a flat income tax rate, meaning a single percentage applies to all taxable income, irrespective of the amount earned. For the 2025 tax year, the individual income tax rate in Michigan is 4.25%. This contrasts with the federal system’s progressive rates.

The amount of income subject to Michigan’s state tax is determined after accounting for certain adjustments and exemptions. Taxpayers can claim a personal exemption of $5,800. Additional exemptions may be available for dependents or individuals with specific disabilities. Michigan tax law also allows certain types of income, such as some retirement and pension income, to be partially or fully exempt from state taxation.

The Michigan Department of Treasury provides a state-specific Form MI-W4, which employees complete to guide employers on the correct amount of state income tax to withhold. This form considers the personal exemptions and other adjustments applicable to the employee’s situation. Both Michigan residents and non-residents earning income within the state are subject to this flat income tax.

Local Income Taxes in Michigan

In addition to federal and state taxes, certain cities within Michigan impose their own income taxes. These local income taxes are levied on individuals who either reside in the taxing city or earn income from sources within that city. This means a Michigan resident’s paycheck can be subject to three layers of income taxation.

Several Michigan cities have local income taxes, including Detroit, Grand Rapids, and Lansing. Tax rates vary by city and are differentiated for residents versus non-residents. Generally, the tax rate for non-residents working within a city is half the rate applied to residents. For example, Detroit levies an income tax rate of 2.4% for residents and 1.2% for non-residents, while most other cities apply 1% for residents and 0.5% for non-residents.

Employers located within these cities, or those employing individuals who work within these city limits, are responsible for withholding these local income taxes from employee paychecks. These city-level deductions are applied in addition to the federal and state taxes, further reducing an employee’s net pay. The specific amount withheld depends on the employee’s residency status relative to the city and their gross earnings subject to that city’s tax.

Other Common Paycheck Deductions

Beyond taxes, a paycheck often includes other deductions that are not government-mandated but still reduce an employee’s take-home pay. These non-tax deductions frequently provide benefits or fulfill financial obligations.

Health insurance premiums are a common deduction, often taken on a pre-tax basis, meaning they reduce an employee’s taxable income before federal, state, and sometimes FICA taxes are calculated. This pre-tax treatment results in a lower overall tax liability for the employee. The specific amount deducted depends on the employee’s chosen health plan and coverage level.

Contributions to retirement accounts, such as 401(k)s and 403(b)s, are another frequent pre-tax deduction. These contributions reduce current taxable income and grow tax-deferred until withdrawal in retirement. Many employers also offer Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs), which allow employees to set aside pre-tax money for eligible healthcare expenses. HSAs allow funds to roll over year to year and can be invested for potential tax-free growth.

Other deductions include union dues, which are post-tax deductions. Wage garnishments also reduce net pay, occurring when a court order or government agency directs an employer to withhold funds for debts like child support, student loans, or unpaid taxes. These are withheld from disposable earnings after taxes. Loan repayments, such as those for 401(k) loans, are often deducted directly from paychecks on an after-tax basis.