Overview of Michigan Taxes
Michigan is a flat-tax state that levies a state income tax of 4.25%. A total of 24 Michigan cities charge their own local income taxes on top of the state income tax rate. Local income tax rates top out at 2.40% in Detroit.
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Michigan Paycheck Calculator
Michigan Paycheck Quick Facts
- Michigan income tax rate: 4.25%
- Median household income: $54,938 (U.S. Census Bureau)
- Number of cities that have local income taxes: 24
How Your Michigan Paycheck Works
If you’ve had an on-the-books job before, you’re probably familiar with the basics of payroll taxes. These include the 6.2% for Social Security taxes and the 1.45% for Medicare taxes that your employer withholds from your earnings each pay period. Your employer also matches those contributions so that the total contributions are double what you pay. Any earnings over $200,000 are subject to a 0.9% Medicare surtax (your employer doesn’t match this). Together, these taxes make up what are called FICA taxes.
Your employer also withholds money to pre-pay your federal income taxes. On the W-4 form you file with your employer, you indicate how much your employer should withhold from your paychecks. Things like your marital status and the number of dependents you have all affect how much your employer withholds. Of course, your pay frequency will also affect the size of your paycheck, with those who are paid monthly getting larger checks than those who are paid biweekly.
Withholding calculations changed for the 2018 tax year because of the tax plan that President Trump signed into law in December 2017. There were no big changes in 2019, but you should check your W-4 regardless just to make sure everything is still correct.
However, the 2020 W-4 includes major revisions. More specifically, filers no longer need to list allowances and the option to claim personal or dependency exemptions has been removed. The form also uses a five-step process that asks you to enter personal information, claim dependents and indicate additional income and jobs. You'll need to fill out the new form if one of the following conditions applies to you:
- You're being hired on or after Jan. 1, 2020
- You're adjusting your withholdings.
- You're changing jobs in 2020.
FICA taxes and income taxes are mandatory. There’s no getting around them. But there are some other deductions from your paycheck that are not mandatory. These include deductions to cover the premiums for an employer-sponsored insurance plan, as well as contributions to a 401(k), a health savings account (HSA), a flexible spending account (FSA) or any other pre-tax benefit programs, such as for commuter benefits or 529 college savings plans.
Looking to purchase a home in Michigan? Our guide to Michigan mortgage rates will help you better understand the details about getting a new mortgage as you prepare for your relocation.
Michigan collects a state income tax, and in some cities there is a local income tax too. As with federal taxes, your employer withholds money from each of your paychecks to put toward your Michigan income taxes. You must claim withholding exemptions for Michigan income taxes by filing Form MI-W4. The W-4 form is not a substitute for the MI-W4, so you need to submit both forms to your employer. Though the 2020 W-4 removes the use of allowances, you may still be able to claim allowances and exemptions on the state level with the MI-W4.
Whether you’re a Michigan resident or not, if you work in Michigan your employer is required to withhold Michigan taxes from your paychecks. That rule also applies if you live in Michigan but your employer is located outside of the state. (In some cases, your employer may not remove Michigan taxes if you live in a state that has a separate, reciprocal agreement with Michigan.)
If you live in one of the 24 Michigan cities with a local income tax, your employer will withhold money for those taxes. Michigan city taxes apply whether you live or work in the city. However, the tax for non-residents is half the rate for residents in all cities. The most common rate (used by 20 of the 24 cities with a local income tax) is 1% for residents and 0.5% for non-residents. Detroit has the highest city rate at 2.4% for residents and 1.2% for non-residents.
A financial advisor in Michigan can help you understand how taxes fit into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.
How You Can Affect Your Michigan Paycheck
In Michigan, all forms of compensation except for qualifying pension and retirement payments are taxed at the same flat rate of 4.25%. This differs from some states which tax supplemental wages (like bonuses) at a different rate. So, you won’t get a tax withholding break from supplemental wages in Michigan. However, you can still boost your paycheck through overtime, bonuses and commissions.
If you’re willing to get smaller paychecks for the sake of tax advantages, you can increase the amount that’s taken out of your paychecks for 401(k), 529 college savings plans, HSA or FSA contributions. You can also ask your company’s HR department if there are other pre-tax benefit programs you can enroll in.
Remember that you can always tweak your withholdings and, in turn, the size of your paycheck, by changing the allowances and exemptions on your MI-W4 form. If you’re married and/or you have two jobs, it’s especially important to get those forms right. In either case, it’s easy to claim too many allowances and get hit with a hefty tax bill as a result. If you have more than one job, you can’t claim the same exemptions/allowances with more than one employer. If you’re worried that not enough money is being withheld from your paychecks, you can request an additional dollar amount of withholding from each paycheck by filing new W-4 and MI-W4 forms.
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2017 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics
