Payroll tax in Michigan: What employers need to know [Updated 2024]

Taxes are an inescapable responsibility for both individuals and businesses—and as employers establish or expand their business, they need to understand more and more about local taxes. In addition to the Federal Insurance Contributions Act (FICA taxes), which are paid to the IRS and cover Medicare tax and Social Security tax, employers must also withhold and pay state payroll taxes. However, regulations differ between states, meaning that employers have to know the tax laws for every state in which their employees reside and work.

Michigan has a flat income tax rate, but many cities in the Great Lakes state levy their own taxes and Michigan has some reciprocal agreements with some other states, making payroll tax complicated and nuanced. Every Michigan employer should know about Michigan’s state tax rules, whether their workers are based in Detroit, Grand Rapids, or elsewhere.

Here’s what you need to know about Michigan taxes, rates, and responsibilities, whether you employ workers in a small business or a large corporation.

The 3 Michigan payroll taxes

In addition to federal income tax (FUTA), Michigan levies state unemployment insurance (SUI) and requires personal income tax withholding, as well as local taxes for some cities.

Unemployment insurance tax

Unemployment provides financial assistance to eligible workers who have lost their jobs involuntarily, covering a portion of their income for a limited time while they actively seek new employment. In Michigan, employers covered under the Michigan Employment Security (MES) Act pay unemployment insurance (UI) taxes, which go toward unemployment benefits for only workers in the state of Michigan. The unemployment tax system is known for being one of the highest “experience-rated” systems in the United States, which means that the tax rates are closely aligned with the actual benefits charges to that account and the size of the employer’s payroll.

Michigan has different UI rates depending on the experience of the employer. New employers in their first two years of liability have a rate set at 2.7%. The only exception is construction employers, whose rates are set in alignment with the average for their industry, typically ranging from 5.3% to 8.1%.

Employers in their third and fourth years have their rates based on their history of benefit charges and taxable payroll, which is known as their unemployment insurance experience. Upon entering the fifth year, employers have a rate that is calculated through three components—the chargeable benefits component (CBC), the account building component (ABC), and the nonchargeable benefits component (NBC)—which are based on benefits charges and payroll.

In cases where the Unemployment Insurance Agency (UIA) Trust Fund balance reaches $2.5 billion for two consecutive quarters, then the taxable wage base may be reduced, decreasing how much employers owe.

Personal income tax (state)

All Michigan employers who withhold federal income tax under the Internal Revenue Code are required to register for, withhold, and remit Michigan income tax. This is required even for companies based out of state. The only exceptions are employees working in Michigan but living in reciprocal states, including Wisconsin, Indiana, Kentucky, Minnesota, Illinois, or Ohio.

As of 2024, Michigan has a flat rate for income tax of 4.25%.

City income tax

Some cities in Michigan also levy their own separate local income tax, known as a city income tax. The rates are as follows:

Handling payroll taxes can be complicated, especially in Michigan, which has three types of payroll taxes, including city taxes at the local level. Simplify things with Rippling’s payroll software. Rippling automatically calculates your taxes and submits your tax forms and payments on your behalf—monitoring the tax laws at the federal, Michigan state, and local levels to ensure full tax compliance. Rippling’s PEO goes even further, registering and maintaining your state tax accounts on your behalf, automating even more of the process.

Payroll tax due dates in Michigan

The various payroll taxes in Michigan have their own due dates, which may vary from employer to employer depending on their filing status.

State employer withholding tax:
All employers should file an annual return. In addition to that, they may be compelled to pay monthly, quarterly, or annually, as assigned by the Treasury based on their estimated monthly payment for each tax.

• Monthly deadline: On or before the 20th of the following month
• Quarterly deadline: On or before the 20th day of the month following the quarter
• Annual deadline: February 28th

City employer withholding tax:
Michigan employers may have to pay local taxes on a monthly or quarterly basis, though most pay quarterly. Here are the deadlines:

• Monthly deadline: On or before the 15th of the following month
• Quarterly deadline: On or before the 15th day of the month following the quarter

State unemployment taxes

State unemployment tax must be filed quarterly. The due dates are:

• First quarter: April 25
• Second quarter: July 25
• Third quarter: October 25
• Fourth quarter: January 25

Late returns and payments are subject to interest and penalties. 

How to submit payroll taxes in Michigan

Now that you know about the types of taxes you must pay, and when to pay them, learn more about how to file payroll taxes in Michigan as an employer.

MiWAM account

Employers can file their quarterly unemployment taxes online through their MiWAM account, a service offered by the Michigan Department of Labor and Economic Opportunity.

Michigan Treasury Online (MTO)

The Michigan Department of Treasury's MTO portal allows employers to file, pay and manage tax accounts online. 

Automated Clearing House (ACH) funds transfer

Employers or their payroll service provider can pay via bulk e-file ACH EFT Debit.

Accelerated electronic funds transfer (EFT)

Payments can be made via EFT through an EFT debit or credit payment. 

Mail

State tax withholdings can be paid with a paper check. Employers should mail it along with a voucher or form to the Michigan Department of Treasury.

City employer tax withholdings can also be mailed after downloading the appropriate forms online and sending them by mail with a paper check.

Rippling’s full-service payroll software

You never worry about deadlines or tax compliance with Rippling’s payroll software. With Rippling, you can automate all of your compliance work. Rippling’s service even files your federal, Michigan state, and local payroll taxes on time and with the right agencies.

FAQs about Michigan payroll taxes

Are there local tax laws in Michigan?

Yes, some cities in Michigan impose their own income tax for both Michigan residents and non-residents. See more about the rates above. 

Can your tax returns be audited in Michigan?

Yes, the Michigan Department of Treasury has the right to audit your tax returns. 

Are nonprofit organizations subject to payroll taxes in Michigan?

Yes, nonprofit organizations are subject to payroll taxes in Michigan. This includes religious, charitable, and some government organizations, even if they are exempt from other types of federal taxes.

Does Michigan have reciprocal agreements with any states?

Yes. A reciprocal agreement is when workers only pay taxes in the state where they reside, not where they work, making them tax exemptions. Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. This means that Michigan state income tax doesn’t need to be withheld for residents of these states working in Michigan, and vice versa.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.