If you earned income in Michigan, you may have to file income taxes with the Michigan Department of Treasury using Form MI-1040 Individual Income Tax Return. As of 2018, Michigan tax payers pay a flat income tax rate of 4.25 percent. Some cities including Detroit and Saginaw also charge a city income tax which can boost your total tax obligations.
If you file a federal income tax return and live in Michigan, you should also file taxes with Michigan, even if you do not owe any income taxes. You must file and pay taxes if your adjusted gross income from your federal return exceeds your Michigan state exemptions. Taxpayers receive a personal exemption of $4,050 as of 2018. So if you earn more than $4,050 per year you may owe Michigan state taxes depending on your other deductions and credits.
Tax Credits and Deductions
Tax deductions help to decrease your taxable income while credits directly decrease the amount you owe in taxes. Some credits that Michigan taxpayers may be eligible for include Earned Income Tax Credit, Vehicle Donation Credit and Public Contribution Credit. Some deductions include losses from disposal of property and some distributions from individual retirement accounts to pay for higher education or charitable contribution.
If you are self-employed or your employer does not withhold enough for taxes because of other income that you have or for any other reason, you must pay estimated taxes each quarter throughout the year if you expect to owe more than $500. If you fail to make payments or underpay your estimated taxes, you will be charged a penalty of 25 percent of taxes owed or 10 percent for each quarter's tax you underpaid.
In that case, you may also be required to make estimated tax payments to the federal government as well as to Michigan.
Michigan Income Tax and Other States
If you live in Michigan, but work in another state, you must still pay income tax on that money both in Michigan and possibly in the other state. Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin which means Michigan residents only pay Michigan income taxes on wages earned in these states. Individuals who moved to or from Michigan in the middle of the year must pay income tax on money earned while living in Michigan, but not on money earned while residing in another state.