Tax in Michigan: a complete guide

1 min readLast updated August 25, 2023by Rachel Carey

The Great Lakes State has recently made several changes to its tax rules and regulations. This tax guide gets you up to speed with the current landscape and looks at the ups and downs, from income tax to sales and property tax.

Since 2012, Michigan has changed its tax code in some significant ways. Its statewide flat rate was reduced from 4.35 percent to 4.25 percent, although 24 Michigan cities, including Detroit, added their own tax to this figure. At this time, the personal exemption rate was also increased.  

Michigan income tax 

Michigan is one of the states that has set a flat income tax rate, meaning you pay the same level however much you earn.  

As mentioned, this is currently 4.25 percent, one of the lowest among states that set a flat rate. Since 2022, taxpayers have been able to claim the state personal exemption, which is $5,000, or $10,000 for joint filers. 

Additionally, several cities across the state also collect their own income taxes, ranging from one to 2.4 percent. 

Here’s a table that shows you the local and total income tax rates for a selection of Michigan cities. The list below gives a good idea of how urban income tax can stack up.

CityState rateCity rateTotal rate
Albion 4.25 percent one percent 5.25 percent
Big Rapids 4.25 percent one percent 5.25 percent
Detroit 4.25 percent 2.4 percent 6.65 percent
Highland Park 4.25 percent two percent 6.25 percent
Jackson 4.25 percent one percent 5.25 percent
Lapeer 4.25 percent one percent 5.25 percent
Pontiac 4.25 percent one percent 5.25 percent
Portland 4.25 percent one percent 5.25 percent
Saginaw 4.25 percent 1.5 percent 5.75 percent
Walker 4.25 percent one percent 5.25 percent

Michigan sales tax 

The sales tax position in Michigan is straightforward. Unlike many other states, there are no city or county sales taxes to worry about. This means you pay a flat, statewide rate of six percent – a lower rate than other states in the region. You’ll find that restaurant food is subject to this tax, but other foods, such as your daily groceries, are not taxed. 

Other useful exemptions include prescription medicines and newspapers. Energy such as electricity, natural gas and home heating fuels are taxed at the lower rate of four percent. 

There are different rates for different types of alcohol in Michigan, with the liquor rate being noticeably high: 

  • Michigan Beer Tax is $0.20 per gallon 

  • Michigan wine tax is $0.51 per gallon 

  • Liquor tax is $11.90 per gallon 

Michigan property tax 

If you want to set up home in Michigan, it’s important to know that the state has some of the highest property tax rates in the country. On average, residents pay 1.32 percent of their home’s value in property taxes each year. 

There are some variables too. As property taxes are valued and collected locally, the amount you’ll pay will vary significantly between areas. For example, the rate is 0.87 percent in Leelanau County, while in Wayne County, which includes the city of Detroit, it’s dramatically higher at 2.35 percent. 

According to the August 2023 Norada Housing Market Forecast, the average home value in Michigan is currently $235,361, which means values have gone up by 2.3 percent over the last 12 months. A shortage of available housing stock could well prevent any significant falls from happening in the near future. It’s a resilient market with strong demand.  

Michigan motor tax 

The sales tax on your vehicle purchase in Michigan is six percent, just like other sales taxes. In terms of dollars, you must multiply the full asking price by 0.06. So, for example, if you paid $10,000 for a car, the motor sales tax would be $600. This is true whether you buy from a dealer or a private individual. Remember that you’ll also have to pay other fees such as registration, title and license plates. 

Michigan’s gasoline motor fuel tax is $0.19 per gallon and $0.15 per diesel. 

Michigan estate tax 

Suppose you’re considering Michigan as a retirement location. In that case, you’ll be interested to learn that the state collects no estate or inheritance tax. 

Just six American states require residents to pay any state inheritance tax as of 2023, and only 12 states currently impose estate taxes. Michigan is in neither of these groups. 

Michigan retirement tax 

On the whole, Michigan has good news in terms of taxation if you’re considering the state as your retirement home. As with all other states, Michigan doesn’t tax Social Security payments and provides some healthy deductions on most other types of retirement income. Property tax is above average, but sales taxes are reasonable and manageable. 

So, what do we mean by healthy deductions on retirement income? Here are some examples: 

  • Taxpayers born before 1946 are eligible for deductions against a private pension income of $54,404 per person 

  • These taxpayers can subtract interest dividends and capital gains of up to $12,127 per person 

  • Public pension income is exempt from tax 

  • Taxpayers born between 1946 and 1952 can claim a $20,000 deduction against all income 

  • For government pension income, the figure is $35,000 per person 

For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.    

Find your financial advisor with Unbiased

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.