What Is the Income Tax Rate in Michigan?
Navigate Michigan's income tax. Understand the state's approach to personal earnings and local tax obligations.
Michigan operates a state income tax system for residents and those earning income within its borders. This system uses a single, consistent tax rate. Understanding how this flat rate applies to various income types and what adjustments can be made is key to navigating tax obligations.
Michigan’s State Income Tax Rate
Michigan’s individual income tax rate is a flat 4.25% for the 2024 and 2025 tax years. A flat tax means all taxable income is subject to the same percentage rate, regardless of the amount earned. This contrasts with progressive tax systems in other states, where higher income levels are taxed at higher rates. The rate applies to taxable income after certain adjustments and exemptions.
Income Subject to Michigan Tax
Michigan’s state income tax applies to various types of income, such as wages, salaries, tips, business income, and capital gains. Interest and dividends are also included in taxable income. Certain retirement income may qualify for specific deductions based on age or birth year. Social Security benefits are not taxed by Michigan. The tax applies to full-year Michigan residents on all their income, and to non-residents only on income sourced from Michigan.
Reducing Your Michigan Taxable Income
Taxpayers can reduce their gross income to arrive at their Michigan taxable income through various exemptions. A personal exemption is available for each taxpayer at $5,600 for the 2024 tax year, with an additional $5,600 for each dependent. Exemptions are also available for individuals who are deaf, blind, or permanently disabled ($3,300), and qualified disabled veterans ($500). These exemptions directly lower the amount of income on which the state’s flat tax rate is applied.
Michigan Tax Credits
Michigan offers several tax credits that can directly reduce a taxpayer’s final tax liability after the income tax has been calculated. One significant credit is the Homestead Property Tax Credit, which helps eligible homeowners and renters with their property tax burden. For the 2024 tax season, this credit can be worth up to $1,800, with eligibility often tied to household income and property value limits.
The Earned Income Tax Credit (EITC) is another important credit, designed to benefit low- to moderate-income workers. Michigan’s EITC is currently set at 30% of the federal EITC amount, and it can result in a refund even if no tax is owed. The Home Heating Credit also assists eligible households with heating costs, with the amount varying based on income and household size.
Understanding Michigan City Income Taxes
Beyond the statewide income tax, many cities within Michigan impose their own local income taxes. These city income taxes are separate from the state tax and add to a taxpayer’s overall tax burden. Currently, 24 Michigan cities levy such taxes.
The rates for city income taxes vary by municipality, but they typically follow a two-tier system. Residents of a taxing city usually pay a higher rate, while non-residents who work within that city’s limits pay a lower rate, often half of the resident rate. For example, Detroit has one of the higher resident rates at 2.4%. Taxpayers residing or working in these cities must account for both state and local income tax obligations.