Michigan Tax Rates

This post provides an overview of the primary taxes levied at the state level in Michigan. The information contained here is intended for general reference. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Michigan utilizes a flat rate individual income tax system, meaning all taxable income is taxed at the same percentage, regardless of the taxpayer’s income level.

  • State Rate: The state income tax rate is a flat 4.25% of Michigan taxable net income (for the 2024 tax year). This rate applies to most types of income, including wages, interest, and capital gains.
  • Local Income Tax: Unlike the sales tax, 24 cities in Michigan (including Detroit, Grand Rapids, and Lansing) impose a separate local income tax. The resident rate for these city taxes generally ranges from 1.0% up to 2.4% (in Detroit), with non-residents who work in those cities paying half the resident rate.
  • Retirement Income: Social Security benefits are not taxable in Michigan. Deductions for other pension and retirement income are available via a complex tiered system based on the taxpayer’s birth year and income type, with a legislative goal of a full exemption by tax year 2026.
  • Credits: Michigan offers a substantial Earned Income Tax Credit (EITC) equal to 30% of the federal EITC, and a Homestead Property Tax Credit to provide property tax relief to eligible homeowners and renters.

Sales and Use Tax

Sales tax is a significant source of state revenue, and Michigan maintains a uniform state rate without local additions.

  • State Rate: The general state sales tax rate is a uniform 6.00% on the retail sale of most tangible personal property and certain services.
  • No Local Sales Tax: Michigan’s constitution does not permit local or county sales taxes. Therefore, the combined state and local sales tax rate is uniformly 6.00% across all jurisdictions, making the combined rate relatively low compared to the national average.
  • Exemptions: Essential items like groceries (unprepared food for home consumption) and prescription drugs are exempt from the 6.0% state sales tax.
  • Reduced Rate: Electricity, natural gas, and other home heating fuels for residential use are taxed at a reduced rate of 4.0%.
  • Use Tax: A state use tax of 6.0% complements the sales tax, applying to taxable items purchased outside of Michigan but used or stored in the state.

Property Tax (Ad Valorem Tax)

Property taxes in Michigan are collected at the local level by school districts, counties, and municipalities. Michigan generally has an above-average effective property tax rate on residential homes.

  • Assessment and Valuation: Property is assessed at 50% of its true cash value (market value), known as the State Equalized Value (SEV).
  • Taxable Value Cap (Proposal A): Michigan has a unique system that limits the annual increase of a property’s taxable value (the value used to calculate taxes) to the lesser of 5% or the rate of inflation.
    • The property’s taxable value “uncaps” and resets to the full Assessed Value (SEV) only when there is a transfer of ownership (e.g., a sale).
  • Principal Residence Exemption (PRE): A homeowner can claim the PRE on their primary residence, which exempts the property from paying the local school operating millage (a major portion of the tax bill).

Corporate Income Tax (CIT)

Michigan imposes an income tax on C corporations and requires unitary combined reporting.

  • Tax Rate: The corporate income tax rate is a flat 6.0% of the corporation’s Michigan taxable net income.
  • Pass-Through Entities: Unlike the previous tax structure (Michigan Business Tax), the current CIT exempts flow-through entities (S Corporations, LLCs, Partnerships), which instead pay tax at the individual owner’s flat income tax rate of 4.25%.
  • Apportionment: For multi-state corporations, Michigan uses a single sales factor apportionment method to determine the amount of income subject to the 6.0% tax.

Unique and Excise Taxes

  • Motor Fuel Tax: A combined tax is levied on motor fuels, set at approximately 48 cents per gallon for gasoline, which is one of the highest rates in the nation.
  • Marihuana Excise Tax: Retail sales of adult-use marijuana are subject to both the 6.0% sales tax and an additional 10% excise tax.
  • No Estate or Inheritance Tax: Michigan does not impose a state-level estate tax or inheritance tax.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.