Michigan's return begins with the federal figures and then adjusts them, which is why two people with identical federal returns can owe different amounts here.
Those adjustments run in both directions, and the treatment of retirement income in particular has been changed by legislation more than once. Guidance written a few years ago can be confidently wrong.
This covers the state income tax, the local taxes some cities levy on top of it, the corporate position, how retirement income is treated, and where the state return departs from the federal one.
Michigan State Income Tax
Michigan imposes a flat state income tax. The standard rate is 4.25%, but Michigan temporarily reduced its rate to 4.05% for tax year 2023 as a result of surplus revenue trigger provisions.
The state return starts from the federal figures and then adjusts them in both directions, which is why a rule of thumb carried over from another state is unreliable here. Treatment of retirement income in particular has been legislated on more than once, so work from the current year's instructions.
Anu Gupta, CA, EA, B.Tech · LinkedInLocal Income Taxes in Michigan
Unlike most states, Michigan allows cities to impose their own income taxes:
| City | Resident Rate / Non-Resident Rate |
|---|---|
| Detroit | 2.4% / 1.2% |
| Grand Rapids | 1.5% / 0.75% |
| Lansing | 1.0% / 0.5% |
| Flint | 1.0% / 0.5% |
| Other Michigan cities | Varies; check with local municipality |
Non-residents who work in these cities also owe the non-resident rate on income earned there.
Michigan Corporate Income Tax
Michigan replaced the old Michigan Business Tax with a Corporate Income Tax (CIT) of 6% on C-corporation net income apportioned to Michigan. Pass-through entities (LLCs, S-corps, partnerships) generally do not pay the CIT at the entity level.
Michigan Retirement Income Taxation
Michigan has a tiered approach to taxing retirement income based on birth year:
| Taxpayer Birth Year | Retirement Income Tax Treatment |
|---|---|
| Before 1946 | Full exemption on most pension/retirement income |
| 1946-1952 | Partial exemption; some income taxable |
| After 1952 | Most retirement income taxable (phasing to alignment with federal treatment) |
Pro Tip: If you were born before 1946, most of your pension and retirement income is likely exempt from Michigan income tax. Consult a tax professional to confirm your specific situation.
Other Michigan Taxes
| Tax | Rate / Details |
|---|---|
| Sales tax | 6% (no local add-on in Michigan, one of few states) |
| Property tax | Varies by county and municipality; Homestead Property Tax Credit available for lower-income residents |
| Estate tax | None (Michigan has no state estate tax) |
| Inheritance tax | None |
| Unemployment insurance | Employer-paid; new employer rate 2.7% |
Michigan Standard Deduction and Exemptions
Michigan uses its own exemption system rather than a standard deduction matching federal:
- Personal exemption: $5,400 per person (taxpayer + spouse + dependents)
- Special exemptions for taxpayers 67+, deaf, blind, or paraplegic
- Michigan does not use the federal standard deduction
Where the State Return Departs From the Federal One
The state return starts from the federal figures and then adjusts them, which is why two people with identical federal returns can owe different amounts here. Understanding the shape of those adjustments explains most of what looks arbitrary about the calculation.
The adjustments run in both directions. Some income taxed federally is removed, and some income not taxed federally is added back, because the state has not adopted every federal provision and in places has deliberately taken a different view. Treatment of retirement income in particular has been changed by legislation more than once, which is why guidance written a few years ago can be confidently wrong.
The practical implication is that a software default or a rule of thumb carried over from another state is unreliable here, and that the federal return is a starting point rather than an answer. Where your income includes anything beyond wages, the adjustments are worth working through explicitly against the current year's instructions.
- Work from the current year's state instructions rather than last year's return, since the adjustments are what change
- Treat retirement income as a question to re-check each year rather than a settled position
- Keep the federal return and the state adjustments together, because the state figure cannot be explained without both
- Where local taxes also apply, remember they are calculated separately again and do not simply follow the state result
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Frequently Asked Questions
Does Michigan have a standard deduction?
No. Michigan uses a personal exemption system. Each person in the household (taxpayer, spouse, dependents) provides a $5,400 exemption.
Do I owe Michigan tax on my pension?
Depends on your birth year. Those born before 1946 generally have full exemptions. Those born 1946-1952 have partial exemptions. Those born after 1952 are generally taxed. Michigan has been phasing in changes.
What is the Michigan homestead property tax credit?
Lower-income Michigan homeowners and renters may qualify for a credit against the property taxes (or rent equivalents) paid on their principal residence. Filed as part of the Michigan income tax return.
How does an employer handle withholding when cities are involved?
By registering where it is required to and withholding accordingly, which means knowing not only where the business is but where each employee works. Remote and hybrid working has made this harder, because an employee's work location may no longer be the office. Where a business has people in more than one taxing city, confirm the registration and withholding position for each with that city rather than applying one rule across the payroll.
What records support a local filing?
Evidence of where the work was physically performed, day by day, where the location varies. That is the fact the allocation turns on, and it is the one least likely to have been recorded at the time. Employees who split their time should keep their own record of it, because reconstructing a year of work locations from memory is neither easy nor convincing.
Written by
Anu Gupta, CA, EA, B.Tech
Anu works with US businesses on tax and entity questions at Profitjets, from choosing a structure to the filings that follow it. She writes about the decisions owners make once and then live with for years. Connect on LinkedIn
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