Overview of Michigan Taxes
Michigan is a flat tax state that levies a state income tax of 4.25%. Twenty-two Michigan cities charge their own local income taxes on top of the state income tax. Local income tax rates top out at 2.4%.
This calculator reflects the 2018 federal withholding tax changes.
Click here to learn more about how the Trump Tax Plan will affect you.
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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 Quick Facts
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 matches those contributions. Any earnings over $200,000 will be 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 will also withhold 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. Your marital status, the number of dependents you have, whether you claim exemption from withholding and the number of allowances you claim all affect how much your employer withholds from your paychecks. Of course, your pay frequency will also affect the size of your paycheck, with those who are paid monthly getting bigger checks than those who are paid biweekly.
Withholding calculations have also changed for the 2018 tax year because of the tax plan that President Trump signed into law in December 2017. The IRS released updated tax withholding guidelines in January and taxpayers should have seen changes to their paychecks, to reflect the new tax plan, starting in February 2018. For the time being, taxpayers do not need to fill out a new W-4. Employers will use the withholdings on your current form.
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 plans.
Looking for a mortgage 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 Median Household Income
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Michigan adds a state income tax to your payroll taxes, and in some cities a local income tax, too. Your employer will withhold 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 you use to claim federal allowances is not a substitute for the MI-W4 – you’ll need to submit both forms to your employer.
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.
Employers located in Michigan must withhold Michigan income taxes from compensation made for work done in Michigan, even if that work was done by a non-resident – unless those non-residents live in a state that has a reciprocal agreement with Michigan.
If you live in one of the 22 Michigan cities with a local income tax, your employer will withhold money for those taxes, too. Michigan city taxes apply whether you live or work in the city, however many cities have different rates for residents and non-residents. The most common rate (used by 18 of the 22 cities with a local income tax) is 1% for residents and 0.5% for non-residents.
Local Income Taxes
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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%. Unlike some states which tax supplemental wages (like bonuses) at a different rate, Michigan considers supplemental wages the same form of compensation as regular wages and salary. So, you won’t get a tax withholding break from supplemental wages in Michigan. However, you can still boost your Michigan paycheck by going after 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, 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 withholding (and the size of your paycheck) by changing the allowances and exemptions on your W-4 and MI-W4 forms. 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.
Michigan Top Income Tax Rate
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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 2016 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics