Michigan Paycheck Calculator 2025

Michigan State Income Tax: A Flat 4.25%

Unlike the federal government or states like New York, Michigan has a flat income tax rate.

There was a temporary reduction to 4.05% in 2023 due to a revenue surplus trigger, but it has returned to the statutory 4.25% for 2024. This rate applies to all taxable income, regardless of how much you earn.

Personal Exemptions

While the rate is flat, you don't pay tax on every dollar. You are allowed a personal exemption for yourself and each of your dependents.

• 2024 Exemption Amount: $5,600 per person.

For example, a married couple with two children claims 4 exemptions. That's $22,400 of income that is completely tax-free before the 4.25% rate is applied.

City Income Taxes: The Michigan Anomaly

Michigan has 24 cities that charge a local income tax. If you live OR work in one of these cities, you will see an additional deduction on your paycheck.

Note: Highland Park currently has the highest resident rate at 2.00% (Detroit's is higher but varies).

Federal Taxes and FICA

Don't forget the federal slice of the pie.

Federal Income Tax

This is a progressive tax (10% - 37%) based on your annualized income and W-4 settings.

FICA Taxes

• Social Security: 6.2% on earnings up to $168,600.
• Medicare: 1.45% on all earnings.

Example Calculation

Let's calculate for a single person living and working in Grand Rapids, earning $50,000 a year.

*Note: City tax exemptions (usually $600 per person) vary by municipality.

Frequently Asked Questions

Understanding the Codes on Your Michigan Paystub

Your paycheck stub (or "pay advice") is the official record of your earnings and deductions. Deciphering the various codes and abbreviations can be confusing, but understanding them is key to ensuring you're being paid correctly.

It's a good habit to check your paystub every pay period, especially if your hours vary or if you've recently changed your tax withholding settings (W-4 or MI-W4).

Bonus Pay and Supplemental Wages in Michigan

If you receive a bonus, commission, overtime pay, or severance, the IRS and Michigan Department of Treasury classify these as "supplemental wages." They are often taxed differently than your regular salary.

Federal Withholding

For federal taxes, employers typically use the percentage method, withholding a flat 22% on supplemental wages under $1 million. If your bonus is added to your regular paycheck, it might be taxed at your marginal income tax rate, which could be higher or lower than 22%.

Michigan State Withholding

Since Michigan has a flat tax rate, the withholding on supplemental wages is simple: 4.25%. There is no special higher rate for bonuses at the state level.

City Taxes

City income taxes also apply to supplemental wages at the standard resident or non-resident rate. A $1,000 bonus for a Detroit resident would see $24 deducted for city tax.

Michigan Unemployment Insurance

Employees in Michigan do not pay State Unemployment Tax Act (SUTA) taxes; this is solely an employer expense. However, understanding it is important for business owners and for awareness of the safety net it provides.

Employers pay unemployment taxes on the first $9,500 of each employee's wages. The rate varies based on the employer's industry and history of claims (experience rating). This fund pays for weekly benefits if you lose your job through no fault of your own.

A Brief History of Michigan's Flat Tax

Michigan's income tax system has undergone several changes since its inception. Understanding this history helps clarify why the rate is where it is today and where it might go in the future.

The state income tax was introduced in 1967 at a rate of 2.6%. It rose over the years, peaking at 6.35% in the early 1980s during an economic downturn. Since then, the trend has generally been downward. The rate was set at 4.35% in 2007 with a promise to roll it back to 3.9% over time.

The 2023 Trigger: In 2023, a dormant 2015 law was triggered because the state's general fund revenue outpaced inflation by a specific margin. This caused the rate to automatically drop from 4.25% to 4.05% for one year.

2024 and Beyond: As of 2024, the outcome of legal interpretations returned the rate to 4.25%. However, there is ongoing legislative debate about permanently lowering the rate to 4.05% or even 3.9% to make Michigan more competitive with neighboring flat-tax states like Indiana.

Detailed List of Michigan City Income Taxes

While we highlighted the major cities above, it is crucial to know if your specific municipality is on the list. Here are additional cities that levy an income tax, generally at 1% for residents and 0.5% for non-residents:

*Note: Detroit's rate is unique (2.4% / 1.2%). Highland Park is also an outlier with a 2.0% resident rate. Always verify with your local clerk's office as these rates can be subject to voter approval and changes.

Helpful Resources

• Michigan Department of Treasury
• IRS Tax Withholding Estimator

Michigan Homestead Property Tax Credit

One of the most valuable tax benefits for Michigan residents is the Homestead Property Tax Credit. This is a refundable credit available to homeowners and renters who own or rent their primary residence in Michigan.

Eligibility Requirements

• Income Limit: Your total household resources must be below $67,950 for the 2024 tax year.
• Residency: You must have lived in Michigan for at least 6 months during the tax year.
• Primary Residence: The property must be your primary home (not vacation or rental property).

Credit Amount

The credit equals 60% of the amount by which your property taxes (or 20% of rent paid) exceeds 3.5% of your household income. The maximum credit is $1,700 for most filers. Seniors and disabled claimants may receive higher amounts.

This credit is claimed when filing your annual tax return using Schedule MI-1040CR or MI-1040CR-2. If you qualify, the credit reduces your tax bill or increases your refund.

Retirement Income Taxation in Michigan

Michigan's treatment of retirement income varies based on the recipient's birth year due to pension reform legislation known as PA 38.

Birth Year Tiers

• Born before 1946: Public and private pension income is exempt up to $61,518 (single) or $123,036 (joint). Social Security is fully exempt.
• Born 1946-1952: May choose between the pre-2012 pension exemption rules or the standard senior deduction. Social Security is exempt.
• Born 1953-1959: Eligible for a reduced senior deduction. Public pension income may be partially exempt. Social Security is exempt.
• Born after 1959: Pension income is generally taxable at the flat 4.25% rate. Social Security remains exempt for all age groups.

The good news is that Social Security benefits are fully exempt from Michigan income tax regardless of your birth year or income level.

Michigan Earned Income Tax Credit

Michigan offers a state-level Earned Income Tax Credit (EITC) that supplements the federal EITC. For tax year 2024, the Michigan EITC equals 30% of the federal credit you receive.

This is a significant increase from previous years when the credit was only 6% of the federal amount. The enhanced credit can provide thousands of dollars in refundable tax relief for working families. To claim it, you must:

• File a Michigan tax return
• Claim and qualify for the federal EITC
• Be a Michigan resident for the entire tax year

For a qualifying family with three or more children, the maximum combined federal and Michigan EITC can exceed $9,000.

Michigan vs. Ohio and Indiana

If you live near the border or are considering relocation, here's how Michigan compares to its neighbors:

• Ohio: Uses a progressive income tax with rates from 0% to 3.5%. Ohio generally has lower rates but also imposes some municipal income taxes.
• Indiana: Has a flat 3.15% state income tax (lower than Michigan's 4.25%), plus county income taxes that typically add 1-3%.
• Michigan: The 4.25% flat rate is straightforward, but local city taxes in places like Detroit (2.4%) can significantly increase your burden.

Other Considerations

• Sales Tax: Michigan (6%) vs. Ohio (5.75%) vs. Indiana (7%). Michigan is in the middle.
• Reciprocity: Michigan has full reciprocity with all three states. Cross-border workers only pay tax to their home state.
• Property Tax: All three states have property taxes, but Michigan's Homestead Credit provides significant relief for primary residences.

Strategies to Increase Your Take-Home Pay

While taxes are mandatory, there are legitimate ways to reduce your tax burden in Michigan:

• 401(k) Contributions: Traditional 401(k) contributions reduce your taxable income for federal AND state purposes. A $10,000 contribution saves you $425 in Michigan taxes alone.
• Health Savings Account (HSA): Contributions are deductible for both federal and Michigan taxes, and withdrawals for medical expenses are tax-free.
• Michigan 529 Plan: Contributions to a Michigan Education Savings Program (MESP) account are deductible on your Michigan return, up to $10,000 per beneficiary per year.
• Claim All Exemptions: Make sure to claim personal exemptions for yourself, spouse, and all dependents. At $5,600 per person, a family of four reduces their taxable income by $22,400.

Special Tax Situations

Remote Workers

If you work remotely for an out-of-state employer, you generally owe Michigan income tax if you are a Michigan resident. Michigan taxes residents on all income regardless of source. However, if your employer is located in a reciprocal state, the withholding process is simplified.

Self-Employment

Self-employed Michigan residents pay the same 4.25% state income tax rate on their net self-employment income. You may also owe federal self-employment tax (15.3% for Social Security and Medicare). Making quarterly estimated tax payments can help you avoid penalties.