How does Michigan state income tax and unemployment insurance work in 2026?
Michigan runs a flat 4.25% income tax with mandatory withholding, and a $9,000 unemployment wage base at a 2.70% new-employer rate.
· Michigan, United States guide
Illustration · Detroit, Michigan
Michigan is the opposite of a no-income-tax state. There is a state income tax, it is a flat 4.25% on every dollar of taxable income, and you withhold it on the MI-W4 the way you run federal withholding. No brackets, no local sliding scale at state level, one rate.
Then two things catch out-of-state employers. Some Michigan cities add their own income tax on top, with Detroit at 2.40% for residents. And unemployment insurance runs on a $9,000 wage base at a new-employer rate of 2.70%, capped at about $243 per employee a year. If you are weighing Michigan against other states, start from the United States hiring overview.
Does Michigan have a state income tax in 2026?
Yes. Michigan levies a flat 4.25% personal income tax in 2026, the same rate on all taxable income, and employers must withhold it. The state treasurer confirmed in April 2026 that no rate reduction was triggered, so 4.25% holds.
You collect a MI-W4 from each employee, withhold 4.25% on supplemental pay too, and file through the state Sales, Use and Withholding system. Each exemption an employee claims cuts taxable wages by $5,900.
You may still see 4.05 percent quoted: that was a one-year dip for the 2023 tax year when a revenue trigger fired, and it reverted to 4.25% for 2024. The April 2026 confirmation from the Michigan Department of Treasury matters because that reduced rate was never permanent, and stale guides still circulate the lower number. Budget on 4.25%.
Your withholding cadence depends on size. Small employers file annually, most file monthly or quarterly, and anyone over the accelerated threshold deposits within a few business days of each pay date. You file the reconciliation return by the end of February for the prior year. One 2026 wrinkle: a new Michigan law exempts tip and overtime income from the 4.25% state tax for tax years 2026 through 2028, so you separate that pay before you withhold.
Do Michigan cities charge their own income tax?
Yes. About two dozen Michigan cities levy a local income tax on top of the state 4.25%. Detroit charges 2.40% on residents and 1.20% on non-residents who work in the city.
If your employee lives or works in one of these cities, you withhold the city tax as well. The non-resident rate is half the resident rate, and it applies only to wages earned for work physically performed inside city limits.
Hire a Detroit resident and you withhold 2.40% in city tax on every dollar of their wages, on top of the state 4.25%. A non-resident who works in the city owes 1.20%, but only on income earned for work physically done inside city limits. Roughly 24 cities, Grand Rapids, Lansing and Flint among them, levy their own local tax, typically 1 to 1.5 percent for residents.
Source: Michigan Department of Treasury, City of Detroit Individual Income Tax
City income tax is the line out-of-state employers miss most often. A remote hire in Detroit owes the 2.40% resident rate on all their wages no matter where the work happens; a commuter who lives in a suburb but works downtown owes the 1.20% non-resident rate only on the days worked in the city.
You register for city withholding separately from state withholding, file a separate city return, and track which employees trigger which city. Get the residency and work-location split wrong and you either over-withhold, which annoys the employee, or under-withhold, which leaves a city liability for you to clean up. That is before you reach the wage and overtime rules that sit alongside it.
What is Michigan's unemployment insurance wage base and rate for 2026?
Michigan's UI taxable wage base is $9,000 per employee for compliant employers in 2026. New employers pay a rate of 2.70%, a maximum of about $243 per employee a year.
Experienced employers are rated from 0.06% to 12.20% for 2026, up from a 10.3 percent ceiling in 2025. New construction employers start at 5.00%.
You pay UI on the first $9,000 of each employee's wages; everything above that in the calendar year is not taxed. File or pay late and you fall to the delinquent $9,500 wage base instead, so staying current is worth real money.
A new employer holds the 2.70% rate until it has enough history for an experience rating, then moves onto a rate set by its own claims. The 2026 ceiling rose to 12.20%, which at the top end runs about $1,098 per employee a year. The federal layer sits on top: net FUTA is 0.6% on the first $7,000 of wages after the full state credit, and you still run Social Security and Medicare on top of that. Michigan moved employers to its new MiUI portal in December 2025, which disrupted Q1 2026 filing and led to an extended deadline. Source: Michigan UIA, Unemployment Tax Rate.
What other payroll rules apply to Michigan employees?
You run the full federal stack: Social Security, Medicare, and FUTA at 0.6% on the first $7,000 of wages. Michigan's minimum wage is $13.73 an hour in 2026, up from $12.48 in 2025.
Michigan also mandates earned sick time. Employers with 11 or more employees must let staff accrue up to 72 hours of paid sick time a year; smaller employers up to 40 hours.
The big 2025 change was the Earned Sick Time Act, which replaced the older Paid Medical Leave Act after the Mothering Justice ruling. Your staff accrue one hour of paid sick time for every 30 hours worked, and since 1 October 2025 the rules reach small employers too, not just larger ones. You can apply a waiting period of up to 120 days for new hires, and unused time carries over within the annual caps. The full picture sits in the Michigan paid family and sick leave guide.
Minimum wage moved as well. The $13.73 rate took effect on 1 January 2026 under the same legislative settlement, with a youth rate of $11.67 for 16 and 17 year-olds. Michigan runs no state paid-family-leave programme, so federal FMLA, which gives 12 weeks of unpaid job-protected leave at employers with 50 or more staff, is your only job-protected family-leave layer, the same baseline you would run in Illinois or Wisconsin.
How Teamed runs Michigan payroll end to end
Teamed becomes your legal employer of record in Michigan for $599 per employee per month flat. Zero FX mark-up. Statutory employer cost passes through itemised on every invoice.
You hire the person. Teamed registers for state and city withholding, runs the flat 4.25% income tax, files unemployment insurance on the $9,000 base, and tracks Earned Sick Time accrual. Everything runs on one platform.
Real HR and legal experts handle your Michigan hires and know the city-tax split, the $9,000 UI wage base, and the Earned Sick Time accrual rules by heart. An actual person, not a chatbot or a pooled queue. You see every cost: state and city withholding, UI contributions, and federal employer taxes pass through at cost, itemised and auditable on every invoice. No setup fee, no exit fee.
Teamed becomes your legal employer of record in Michigan for $599 per employee per month flat, with zero FX mark-up. We register for state and city withholding, run the flat 4.25% income tax, and file the Michigan wage and overtime, Earned Sick Time and termination rules on the same platform.
Contractor onboarding, EOR payroll, and entity graduation all live on one platform: a Michigan contractor who converts to W-2 keeps their record, and that same employee can graduate from EOR to your own US entity without switching systems. Michigan stacks state withholding, city tax and a rising UI ceiling, so the cost case for your own entity arrives sooner per head than in a no-income-tax state. Run the numbers against neighbouring Ohio or Indiana and the gap shows up fast. Use the Crossover Calculator to see the month the model flips. EOR is the right model for Michigan, until it isn't.
The mistake we see on Michigan is budgeting for the flat state rate and stopping there. Detroit and two dozen other cities add their own income tax, the UI ceiling jumped for 2026, and Earned Sick Time now reaches the smallest employers. The state line is the easy part; the city and UI lines are where the work is.
Michigan looks simple: one flat 4.25 percent income tax, no brackets.
Then Detroit adds a city tax, the unemployment ceiling climbs to 12.2 percent for 2026, and Earned Sick Time reaches every employer.
The flat rate is the headline. The city and UI lines are the part we run for you.
