Michigan State Tax Guide: What You’ll Pay in 2024
Michigan is moderately tax-friendly for retirees, with no tax on Social Security, estates or most inheritances and a lower sales tax compared with other states. Retirement income is partially taxable depending on your age, but it will be fully exempt from the state tax by 2026.
The big picture:
● Income tax: 4.05 percent
Michigan reduced its flat individual income tax rate to 4.05 percent for tax year 2023. However, the rate will go back up to 4.25 percent in 2024, which will impact taxes filed in 2025. In addition to the state income tax, you may pay local income taxes depending on where you live or work. For example, Detroit levies an additional income tax of 2.4 percent. The local tax on nonresidents is usually half the rate for residents.
● Property tax: 1.38 percent of a home’s assessed value (average)
Real estate taxes vary widely in Michigan, with an average tax rate of 1.38 percent of a home’s assessed value in 2021, according to the Tax Foundation.
● Sales tax: 6 percent (average combined state and local)
Michigan’s state sales tax rate is 6 percent. There are no local sales taxes.
How is income taxed in Michigan?
For 2023, Michigan reduced its individual income tax rate to 4.05 percent, down from its usual flat rate of 4.25 percent. Under state law, the state’s income tax rate may decrease if certain economic conditions are met during the previous fiscal year (Oct. 1–Sept. 31). The income tax rate went back to 4.25 percent on Jan. 1, 2024, which will impact taxes filed in 2025.
Some municipalities collect local income taxes on top of the state income tax, ranging from 1 percent to as much as 2.4 percent in Detroit. Nonresidents who work in the municipality usually pay half the local tax rate.
Watch the video below to learn how to identify your 2023 federal income tax brackets.
Are pensions or retirement income taxed in Michigan?
Yes, but it’s complicated. In tax year 2023, Michigan began a four-year phase-out of its retirement income tax. By the 2026 tax year, pensions and income from 401(k) and IRA withdrawals will be fully exempt from state income tax. In the meantime, you may qualify for tax relief depending on your age or occupation.
As of tax year 2023, certain fire, police and corrections retirees can exclude retirement benefits received from Michigan service from their taxable income. All other retirees may choose to use the state’s previous “tier structure” formula or a new “phase-in method” to calculate the amount of their exemption, whichever is more beneficial.
Find more information about the changes and how to calculate your deduction on the Michigan Department of Treasury website. You may also use the state’s retirement and pension deduction estimator to help you decide which is best for you.
AARP's retirement calculator can help you determine if you are saving enough to retire when — and how — you want.
What about investment income?
Michigan taxes capital gains from investments and dividends at 4.05 percent for tax year 2023, although people 77 and older are eligible for deductions.
Does Michigan tax Social Security benefits?
No, but you may pay federal taxes on a portion of your Social Security benefits, depending on your income. Up to 50 percent of your benefits will be taxed if you file an individual tax return and make between $25,000 and $34,000 in total income — or if you file jointly and as a household make $32,000 to $44,000 in total income. And up to 85 percent of your benefits will be taxed by the federal government if your total income is more than $34,000 individually or $44,000 as a couple.
AARP's Social Security calculator can assist you in determining when to claim and how to maximize your Social Security benefits.
How is property taxed in Michigan?
Property tax in Michigan is a local tax based on your home’s taxable value and the local tax rate, known as the millage rate. State law caps yearly increases in taxable value at either 5 percent or the rate of inflation, whichever is less.
When a home sells or ownership is transferred, the taxable value is “uncapped” — and the following year’s taxes are based on the home’s assessed value, which is half its market value. The cap then applies to future increases in taxable value until the next time the home is sold.
Median property taxes in 2021 ranged from a high of $4,782 in Washtenaw County to a low of $1,001 in Luce County, according to the Tax Foundation.
To estimate how much you’ll pay in property taxes, use the Michigan Department of Treasury’s property tax estimator.
What about sales tax and other taxes?
● Sales and use tax: Michigan levies a 6 percent tax on most consumer goods and services. Michigan does not allow city or local units to impose sales tax.
● Certain items are exempt from the tax, including prescription drugs, prosthetic devices and durable medical equipment, and food so long as it’s not prepared for immediate consumption. Feminine hygiene products are exempt. Electricity, natural or artificial gas, and home heating fuels for residential use are taxed at a 4 percent rate.
● Gas and diesel: Michigan drivers pay an excise tax of 30 cents per gallon at the pump, in addition to a prepaid sales tax.
● Alcohol: Liquor is taxed at 10.8 percent of the retail price. Wine is taxed at 13.5 cents per liter if 16 percent alcohol or less, and 20 cents per liter if over 16 percent alcohol. The mixed-spirits drink tax is 30 cents per liter. Beer is taxed at $6.30 per barrel. These taxes are paid by the wholesaler or manufacturer but may be included in the retail price. Alcohol is also subject to sales tax.
Lottery: Michigan taxes lottery winnings of more than $5,000. Michigan Lottery will withhold state taxes at the income tax rate in effect during the year in which you were paid the winnings (4.05 percent for tax year 2023) and 24 percent for federal income tax.
Will I or my heirs have to pay inheritance and estate tax in Michigan?
No. Michigan does not have an estate tax, and most people won’t pay an inheritance tax. Technically, the state’s inheritance tax is still in effect, but only for individuals who inherited from someone who died on or before Sept. 30, 1993. That’s a long time ago, so the inheritance tax would only kick in if an asset was discovered now and had not been included in the original estate.
Are there any tax breaks for older Michigan residents?
Older Michiganders may be eligible for several tax relief programs:
- Homestead property tax credit: Michigan has a homestead property tax credit for qualified homeowners and renters, regardless of age. You may qualify if you have owned or rented a Michigan property for at least six months and have a total household income of $67,300 or less. If you owned your home, the taxable value must not exceed $154,400. Find more information on the Department of Treasury website.
- Senior alternate credit: If you are 65 or older and pay more than 40 percent of your total household income in rent, you may qualify for the senior alternate credit. You cannot claim both the senior alternate credit and the homestead credit, but you should choose the one that gives you the biggest tax benefit. The Department of the Treasury has more information.
- Tax deferment: If you’re over 62 and your household income for the previous year was $40,000 or less, you may qualify for a summer tax deferment, allowing you to delay paying your summer property taxes until February 15 of the following year. Contact your local treasurer for details.
Some counties may also allow people 65 and older to delay paying their winter property taxes without fees or interest. Check with your local treasurer to see if this is available where you live and whether you qualify.
- Veterans: If you are a veteran or actively serving in the military, you may be eligible for additional property tax credits and exemptions. Learn more here.
Are military benefits taxed in Michigan?
Military pensions are not taxed in Michigan. Michigan National Guard pensions and railroad benefits are also exempt, as is military active duty pay.
What is the deadline for filing Michigan state taxes in 2024?
A Michigan state tax return is due April 15, 2024, unless you file for an extension.
Find information about applying for an extension on the Michigan Department of Treasury website. You must pay any taxes owed by the original deadline to avoid penalties.
For help estimating your annual income taxes, use AARP's Tax Calculator.
Sharon Waters, a former CPA, has written for Wired.com and other publications.
