9 Facts About Michigan’s Taxes To Know Before You File

While U.S. residents pay the same federal taxes no matter where they live in the country, each state imposes different tax rates on its residents. 

As a Michigan resident and employee, it’s essential to understand how expensive your taxes are so you can prepare your finances accordingly. 

In this tax guide, we explain Michigan’s state-specific taxes and share resources for free tax e-filing.

Michigan levies a flat-rate individual state income tax of 4.25%. For the 2023 tax year, that rate was temporarily reduced to 4.05%. 

However, although a recent lawsuit challenged the state’s right to increase the tax rate back to the full 4.25%, the 2024 year will likely see a return to the standard 4.25%.

In other words, if your income has remained roughly the same over the last few years, you can anticipate paying slightly less on your state income tax this year than what you paid for the 2022 tax year. 

Conversely, you should plan on paying slightly more for the 2024 tax year than you did this year.

Michigan residents generally have a lower tax burden than residents in other states — except for property taxes. 

According to a Rocket Mortgage ranking, Michigan ranks 38 out of all 50 states regarding its property tax burden. 

The state’s effective property tax rate is 1.38%, and the average Michigan homeowner pays around $7,370 a year in property taxes.

While Michigan isn’t one of the few states to waive capital gains taxes, it keeps costs relatively low for Michigan residents who sell investments at a profit. Michigan taxes all capital gains at the standard flat income tax rate of 4.25%.

Plus, Michigan doesn’t tax short-term and long-term gains differently. Both types of profit are subject to the same standard income tax.

Worried about taxes eating into the inheritance you plan to leave behind for your kids? If you live in Michigan, there's no need to worry. Like most states, Michigan doesn't tax estates or impose an inheritance tax.

Michigan’s fuel taxes aren’t the cheapest in the nation, but they still come in under the U.S. federal average. Michigan residents pay $0.28 per gallon of gas in taxes compared to the U.S. average of $0.29 a gallon.

Retired seniors in Michigan don’t need to worry about the state taxing their Social Security benefits. Fortunately for residents, Michigan isn’t one of the 10 states where Social Security checks are taxed at the state level.

Michigan charges a 6% state tax rate on all sales. Unlike many states, Michigan doesn’t allow cities or local municipalities to charge sales taxes. 

The price of goods shouldn’t vary based on where you are in the state (at least, not in terms of how much you’ll be taxed at the state level).

The easiest way to file state taxes in Michigan is via electronic tax filing software. You can use paid tax software like TurboTax or access free e-filing services by visiting the Michigan Treasury Department’s list of tax software.

Note that depending on the software, you can only access the free offer through the Treasury Department’s link.

Wondering how much of your Michigan state taxes are reinvested in your community? According to a 2023 WalletHub study, Michigan ranks 18 (out of 50) when it comes to reaping community-level benefits from state taxes.

In terms of offering helpful government services relative to tax contributions, Michigan ranks 28 out of 50, putting it in the bottom half of the nation. 

Compared to other states, Michigan takes 28th place for investing in education, 27th for public safety and pollution/infrastructure, and 26th for investing in the economy.

That said, Michigan ranks 19 for state investment in public health — better than most states, and no small matter in a world where COVID-19 is still a significant health concern.

While Michigan's low income, fuel, and capital gains taxes offer a financial perk to most residents, property taxes skew the picture for homeowners. 

Remember, timely filing is crucial to avoid penalties, so explore Michigan's e-filing options before the April 15th deadline. Save yourself stress and potential fees, and keep more money in your bank account.