How Much Tax Should I Expect to Pay in Michigan?

The amount of tax an individual pays in Michigan is a combination of several distinct taxes, influenced by income, location, and purchasing decisions. This overview will break down the primary taxes that Michigan residents encounter.

Michigan State Income Tax

Michigan utilizes a flat individual income tax rate of 4.25% for the 2025 tax year. This single rate applies to all income levels. The starting point for calculating your state tax is your federal Adjusted Gross Income (AGI), which is found on your federal Form 1040. From this AGI, you must make certain Michigan-specific additions and subtractions on Schedule 1 of the MI-1040 form.

Common additions include interest earned from other states’ municipal bonds and losses from out-of-state businesses. Subtractions, which reduce your income subject to tax, are more common. Michigan does not tax Social Security benefits, and military pay and retirement income are also exempt. A deduction is available for retirement and pension benefits, though eligibility and amounts are tiered based on the taxpayer’s year of birth.

After these adjustments, you can further reduce your taxable income by claiming exemptions. For the 2025 tax year, each taxpayer and dependent can claim a personal exemption of $5,800. Once all subtractions and exemptions are accounted for, the 4.25% tax rate is applied to the final taxable income figure to determine your base tax liability.

Local City Income Taxes

Beyond the statewide income tax, individual cities in Michigan are permitted to levy their own separate income tax. This tax applies to individuals who live or work within these specific cities and is paid directly to the city, requiring a separate city income tax return.

The tax rates differ based on whether you are a resident of the city or a non-resident who earns income there. Non-residents are taxed at half the rate of residents. For instance, Detroit imposes a 2.4% tax on its residents, while non-residents who work in the city pay 1.2%.

While most cities with an income tax levy a 1% tax on residents and 0.5% on non-residents, a few have different rates. The cities with an income tax are:

• Albion
• Battle Creek
• Big Rapids
• Detroit
• Flint
• Grand Rapids
• Grayling
• Hamtramck
• Highland Park
• Hudson
• Ionia
• Jackson
• Lansing
• Lapeer
• Muskegon
• Muskegon Heights
• Pontiac
• Portland
• Saginaw
• Walker

In addition to Detroit’s 2.4% rate, Grand Rapids levies 1.5% on residents, Highland Park 2.0%, and Saginaw 1.5%. Non-resident rates in these cities are half of the resident rate. If you live in one of these cities, all your income is subject to the resident tax rate. If you live outside a city with an income tax but work inside one, only the income earned within that city is subject to the non-resident rate.

State Sales and Use Tax

Michigan levies a statewide sales tax at a rate of 6% on the retail sale of most goods and some services. A feature of Michigan’s system is its uniformity; there are no additional local sales taxes imposed by cities or counties.

Many items are specifically exempt from this tax. Most food items for home consumption, such as groceries, are not taxed. Other exemptions include prescription drugs, durable medical equipment, and newspapers. However, prepared food from restaurants, carbonated beverages, and alcohol are all subject to the 6% sales tax.

Complementing the sales tax is the state’s use tax, also set at 6%. The use tax applies to taxable goods purchased from an out-of-state seller for use in Michigan when the seller did not collect Michigan sales tax. This commonly affects online purchases from retailers who do not have a physical presence in the state. The responsibility for paying the use tax falls on the consumer and is handled on the annual state income tax return or a specific use tax form.

Understanding Michigan Property Tax

Property tax in Michigan is a local tax that funds services like schools, police, and libraries. Rates are not set by the state and vary significantly between communities.

The process begins with the local assessor determining the property’s State Equalized Value (SEV), which is set at approximately 50% of the property’s estimated fair market value. Your tax bill is not based directly on the SEV, but on the property’s Taxable Value.

The concept of Taxable Value is a result of a 1994 law known as Proposal A. This law limits the annual increase in a property’s Taxable Value to the rate of inflation or 5%, whichever is less. The Taxable Value can never be higher than the SEV. When a property is sold, the Taxable Value “uncaps” and resets to the SEV for the new owner in the following year, which can lead to a significant increase in property taxes.

The final component is the millage rate. One mill is equal to $1 of tax for every $1,000 of Taxable Value. Your total millage rate is the sum of all millages from your county, city, school district, and other local authorities. The formula for your tax bill is: (Taxable Value / 1,000) x Total Millage Rate. A home with a Taxable Value of $100,000 and a total millage rate of 45 mills would have a tax bill of $4,500.

Other Common State Taxes

Michigan residents may encounter several other state-level taxes. These are excise taxes on specific products or activities and are often included in the final purchase price.

Motorists pay a state gasoline tax of 31 cents per gallon, which is subject to annual adjustments for inflation. Vehicle registration fees are a form of tax based on the Manufacturer’s Suggested Retail Price (MSRP) of the vehicle when it was new, meaning more expensive vehicles have higher registration fees.

“Sin taxes” apply to tobacco and alcohol products. For example, there is a state tax of $2.00 per pack of 20 cigarettes. Beer, wine, and liquor are all subject to their own specific state excise taxes, which are paid in addition to the standard 6% sales tax at the point of sale.