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Michigan's income tax rate is fixed by statute at 4.25%. In 2023 a revenue-triggered mechanism briefly reduced it to 4.05%, but the reduction applied to that tax year only and the rate reverted the following year — a sequence that produced considerable confusion, since many people assumed the cut was permanent.

Michigan pairs the flat rate with a personal exemption claimed for each taxpayer and dependant, indexed annually. Unlike most states, Michigan offers no standard deduction as such, so the exemption is the main mechanism reducing taxable income for ordinary workers.

Because the rate is flat and the exemption modest, Michigan's effective rate sits close to its statutory rate for most earners — the state tax is easy to estimate, which is unusual and genuinely useful.

Twenty-four Michigan cities levy a local income tax under the state's City Income Tax Act. Detroit charges the most, at 2.4% for residents and 1.2% for non-residents who work in the city. Grand Rapids, Lansing, Flint, Saginaw and others charge lower rates, typically 1% for residents and 0.5% for non-residents.

The non-resident rate is the part people miss. If you live in a suburb with no city tax and commute into Detroit, Detroit still taxes the income you earn there at the non-resident rate. If you live in one taxing city and work in another, you may owe both, with a partial credit from your home city.

For a Detroit resident, the combined state and city rate approaches 6.65% — a materially different figure from the 4.25% the state rate implies, and the reason any Michigan estimate that ignores city tax will overstate take-home pay.

Michigan spent more than a decade taxing retirement income after a 2011 change removed long-standing exemptions, a policy widely known as the pension tax. Legislation passed in 2023 began phasing that back out.

The rollback restores the more generous pre-2012 treatment in stages, with the exemption expanding each year until it is fully restored. Older retirees reached full eligibility sooner; younger ones phase in over the schedule. In the interim, Michigan lets taxpayers choose whichever of the available calculation methods gives the better result.

Social Security has remained exempt from Michigan income tax throughout. For anyone approaching retirement in Michigan, the practical point is that the rules changed recently and are still changing — figures more than a year or two old are unlikely to be right.