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Michigan Taxes: What You Need to Know

Federal, State, and Local Tax Withholding in Michigan for 2024

Federal Income Tax

In 2024, Michigan residents, like all U.S. citizens, are subject to federal income tax, which operates under a progressive tax system. This system means that individuals are taxed at different rates based on their income level. The federal income tax rates for 2024 are as follows:

• 10% on taxable income up to $11,000
• 12% on income between $11,001 and $44,725
• 22% on income between $44,726 and $95,375
• 24% on income between $95,376 and $182,100
• 32% on income between $182,101 and $231,250
• 35% on income between $231,251 and $578,125
• 37% on income over $578,125

The IRS adjusts these brackets annually based on inflation, affecting the tax liability of all individuals based on their income levels .

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Michigan State Income Tax

Michigan employs a flat income tax rate of 4.25% for all residents, which means that all taxable income is taxed at this uniform rate. This approach simplifies the tax system, making it straightforward for residents to calculate their state income taxes. Unlike the federal system, where higher earners are taxed at progressively higher rates, Michigan’s single rate applies equally to all taxable income, regardless of amount.

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Local Taxes

While Michigan does not impose state-wide local income taxes, several municipalities do impose their own local income taxes. For instance:

• Detroit: Residents face a local income tax rate of 2.4%, while non-residents working in Detroit pay 1.2%.
• Grand Rapids: The local income tax rate is 1.5% for residents and 0.75% for non-residents.

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Additionally, Michigan’s property tax rates average 1.54%, which is slightly higher than the national average, and the state has a sales tax rate of 6%, with no additional local sales tax .

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FICA and State Insurance Taxes in Michigan in 2024

For 2024, Michigan follows the federal guidelines for FICA (Federal Insurance Contributions Act) taxes, which are consistent across all states in the U.S.

The FICA tax rates for 2024 are:

1. Social Security Tax: The rate is 6.2% each for both the employee and the employer, totaling 12.4%. The wage base limit for Social Security is $168,600, meaning that only earnings up to this amount are subject to Social Security tax.
2. Medicare Tax: The rate for Medicare is 1.45% each for the employee and employer, making a total of 2.9%. Unlike Social Security, Medicare does not have a wage base limit—meaning all covered wages are subject to this tax.
3. Additional Medicare Tax: For employees earning more than $200,000 in a year, an additional Medicare tax of 0.9% is applied, which is only imposed on the employee’s share and does not require matching from the employer​(
   IRS

These rates and requirements apply to Michigan residents, just as they do to residents of any other U.S. state.

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Pre-Tax Deductions in Michigan for 2024

Pre-tax deductions are vital for reducing taxable income, thereby lowering overall tax liability. In Michigan, common pre-tax deductions include:

1. Health Insurance Premiums

Contributions to employer-sponsored medical, dental, and vision insurance are typically deducted from paychecks before taxes are calculated. This arrangement reduces the employee’s taxable income and, consequently, their federal, state, and FICA tax liabilities .

2. 401(k) Contributions

Contributions to 401(k) retirement accounts are made on a pre-tax basis, allowing employees to save for retirement while reducing their taxable income. For 2024, the contribution limit is $23,000, with an additional $7,500 catch-up contribution allowed for those aged 50 and older 

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3. Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA)

• HSAs allow contributions for individuals enrolled in high-deductible health plans. In 2024, the contribution limits are $4,150 for individuals and $8,300 for families.
• FSAs allow employees to set aside up to $3,050 pre-tax for qualifying medical expenses .

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4. Commuter Benefits

Employees may also benefit from pre-tax deductions for commuting costs, including public transportation passes and parking expenses. These deductions are capped annually by the IRS, allowing employees to save on costs associated with commuting while lowering their taxable income.

In 2024, the IRS limit for pre-tax commuter benefits is $315 per month for transit expenses and an additional $315 per month for qualified parking expenses. Utilizing commuter benefits can help employees save money on commuting costs while reducing taxable income.

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2024 Michigan Tax Table Example

Median Household Income in Michigan

The median household income in Michigan offers insight into the economic health of the state’s residents. In 2023, the median household income is estimated to be around $69,183, showing a steady increase in recent years as the state’s economy grows.

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Michigan Tax Brackets 2024

In 2024, Michigan’s income tax structure is characterized by a flat tax rate of 4.25%. This structure contrasts with the progressive federal tax system, offering simplicity for taxpayers in calculating their obligations. Here are the key points regarding tax brackets:

Michigan Tax Structure

• Flat Tax Rate: All taxable income is taxed at 4.25%, regardless of the income level.
• Federal Tax Brackets

While Michigan has a flat state tax rate, residents must also consider federal tax brackets, which vary significantly depending on income level. For 2024, these brackets include:

• • 0% up to $11,000
  • 12% for income between $11,001 and $44,725
  • 22% for income between $44,726 and $95,375
  • 24% on income between $95,376 and $182,100
  • 32% on income between $182,101 and $231,250
  • 35% on income between $231,251 and $578,125
  • and continuing up to 37% for incomes above $578,125.

Impact on Taxpayers

The flat rate in Michigan benefits lower to middle-income earners, as they do not face higher tax rates as they might in a progressive system. However, higher-income earners may find that a flat rate does not provide the same tax relief as progressive structures ..