Everything You Need To Know About Michigan State Taxes
The state of Michigan requires you to pay taxes if you’re a resident or nonresident that receives income from a Michigan source. The state income tax rate is 4.25%, and the sales tax rate is 6%.
Michigan Income Tax Brackets and Rates
Michigan has a flat tax rate of 4.25% for 2021, meaning everyone pays the same state income tax regardless of their income.
Income Tax Deductions for Michigan
Tier 1 Michigan Standard Deduction
Taxpayers born prior to 1946 may be eligible for the Tier 1 Michigan Standard Deduction, which is applicable to retirement and pension benefits of up to $54,404 for single filers and up to $108,808 for taxpayers filing jointly.
Tier 2 Michigan Standard Deduction
Taxpayers born between 1946 and 1952 may be eligible for the Tier 2 Michigan Standard Deduction, which is worth $20,000 for single filers and up to $40,000 for taxpayers filing jointly.
Tier 3 Michigan Standard Deduction
Taxpayers born in 1953 and 1954 may be eligible for the Tier 3 Michigan Standard Deduction, which is worth $20,000 for single filers and up to $40,000 for taxpayers filing jointly.
Michigan 529 Contributions Deduction
Contributions to Michigan Education Savings Program (MSEP), MI 529 Advisor Plan (MAP), and Michigan Achieving a Better Life Experience Program (MiABLE) 529 accounts may be deducted. Deductions for these contributions are capped at $10,000 for single filers and $20,000 for joint filers. For the MESP and MAP accounts, the maximum deduction is $5,000 combined for a single taxpayer and $10,000 combined for couples filing jointly. The same cap applies to MiABLE accounts.
Michigan Education Trust Deduction
You can deduct contributions you made to a Michigan Education Trust (MET) 529 prepaid tuition contract, including charitable contributions to the MET’s Charitable Tuition Program.
Michigan State Income Tax Credits
Home Heating Tax Credit
Michigan residents who meet certain qualifications may request a credit to help cover heating expenses. Partial-year residents are eligible, but students who are being claimed as someone else’s dependent, residents of college or university-operated housing and those living in licensed care facilities are generally not eligible.
The standard credit has a maximum income ceiling of $39,157 and a maximum allowance of $1,371 (unless you qualify for certain exemptions). The alternate credit computation, which uses your heating costs to determine the amount of your credit, has an income ceiling of $27,700.
You must fill out the Home Heating Credit Claim MI-1040CR-7 form to determine your eligibility. The deadline for that submission is Sept. 30, 2022.
Michigan Earned Income Tax Credit (EITC)
If you claim an EITC on your federal tax return, you can claim one on your Michigan income tax return as well. The Michigan EITC is equal to 6% of your federal credit.
The federal EITC income cap ranges from $21,430 to $57,414 depending on how you file and how many children or relative dependents you claim. The maximum federal EITC amount you can claim on your 2021 tax return is $6,728.
For example, if you’re eligible for $3,000 federally, you can claim $180 through the Michigan EITC.
Do I Have to Pay Income Tax in Michigan?
You’re required to file a Michigan tax return if you have income from a Michigan source. This applies whether you are a full-time or part-time resident, or live elsewhere but earn income from a Michigan-based source.
You’re considered a resident if:
- You reside in Michigan full time
- You reside in Michigan for part of the year
Michigan residents who earn income in Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin need only pay Michigan income tax on that income.
Sales Tax and Sales Tax Rates
Michigan charges a sales tax of 6%. This is a statewide sales tax and Michigan doesn’t have separate rates by city or county.
Property Taxes and Property Tax Rates
Property taxes are determined locally.
Capital Gains Taxes
Michigan taxes capital gains at the same rate as other income, 4.25%.
Senior citizens born before 1946 can deduct interest, dividend and capital gains on their state income tax return. For 2021 taxes, the maximum deduction for single filers is $12,127, and the maximum deduction for joint filers is $24,254.
Inheritance and Estate Tax
Michigan doesn’t have an inheritance or estate tax.
Homestead Property Tax Credit
If you own property in Michigan and live in the state at least half the year, you may be eligible for the homestead property tax credit. The credit is available for taxpayers who have total household resources below $60,600.
Total household resources include income, capital gains, and other money you have received. See page 27 of the instructions for the Michigan 1040 form for a full list of what’s included in total household resources.
If the taxable value of your property exceeds $136,600, you’re not eligible to receive the credit.
Michigan offers a tax credit for rent paid by residents. Twenty-three percent of the amount you paid for rent is considered property tax, and you can claim it on your state tax return. Your total household resources must be $60,600 or below to claim the credit.
An alternate credit is available for senior citizens age 65 and up who pay more than 40% of their total household resources in rent. The maximum credit for senior renters is $1,500.