Michigan Individual Income Tax Update

As tax laws and regulations are constantly changing, we try our best to keep you abreast of those changes. Here we wanted to update you on a few changes from the Michigan Department of Treasury.

State Income Tax Reduction for 2023

For 2023 Michigan individual income tax rates have been reduced to 4.05% from the previous 4.25%.

Individuals and fiduciaries subject to tax under Part 1 of the Income Tax Act, MCL 206.1 et seq., are subject to tax at a 4.25% tax rate under Section 51 of the Income Tax Act, MCL 206.51. However, for each tax year beginning on and after January 1, 2023, that rate may be subject to a formulary reduction as provided by Section 51(1)(c) if there is a determination that the percentage increase in general fund revenue from the immediately preceding state fiscal year exceeded the inflation rate for the same period. That determination is required to be made jointly by the State Treasurer, the Director of the Senate Fiscal Agency, and the Director of the House Fiscal Agency based on financial data from the Annual Comprehensive Financial Report (ACFR).

Based on recently finalized data from the ACFR for the fiscal year that ended September 30, 2022, it has been determined the conditions requiring a reduction to the current tax rate have been met. Based on the formula prescribed by Section 51(1)(c), the reduction to the current tax rate is equal to 0.20 percentage points (0.20%). Thus, the tax rate applicable to all individuals and fiduciaries for the 2023 tax year is 4.05%. This revised rate is an annual tax rate that is effective as of January 1, 2023.

Treasury’s withholding rate tables for the 2023 tax year will not be updated to accommodate the revised rate. Individuals and fiduciaries with questions about the effect of the rate change on the amount of tax being withheld from their income should contact their employer or administrator directly.

Source: Michigan.gov/treasury

Retirement Tax Roll Back

The Lowering MI Costs Plan, signed into Michigan law on March 7, 2023, amended (in part) MCL 206.30 to roll back the 3-tier system of limitations and restrictions placed on the retirement subtraction in 2012. This change provides taxpayers more options to choose the best taxing situation for their retirement benefits.

Although subject to a temporary 4-year phase-in period, this new law will restore the pension subtraction for most taxpayers in Michigan beginning in 2026 – subject to some minor changes as described below. While this law will impact the 2023 tax year, it will not take effect until 90 days after the close of the current legislative session.

It is anticipated that the above changes in law will ultimately benefit most retirees in Michigan, nonetheless the Lowering MI Costs Plan ensures that taxpayers in unique circumstances are not harmed by this change in law.

More details regarding which option will be most advantageous to you can be found HERE

Source: House Bill 4001

Michigan Earned Income Tax Credit (EITC) for Working Families

The Lowering MI Costs plan increased the Michigan Earned Income Tax Credit (EITC) from 6% to up to 30%. Eligible individuals should file and claim this credit. Special rules apply for receiving the credit in the 2022 tax year.

The credit is up to $2,080. Your eligible credit amount depends on several factors – including your income, filing status, number of “qualifying children”, and/or if you are disabled.

Source: House Bill 4001