Three big changes coming to Michigan income tax returns

When the Michigan Department of Treasury starts processing 2023 state income tax returns on Jan. 29, there will be three big changes taxpayers should expect thanks to a tax overhaul signed into law in 2023 by Gov. Gretchen Whitmer:

  1. All state residents will benefit from a temporary, lower income tax rate. The flat income tax rate on state of Michigan returns was 4.25% in 2022, and it will drop to 4.05% in 2023. So you may see lower taxes and/or a bigger refund if your withholdings or other tax payments were not already adjusted for the change during 2023.
  2. Some 700,000 households in Michigan will benefit from a far more generous Michigan earned income tax credit for working families. The credit increased from 6% of the federal credit in 2021 to 30% in 2022, 2023 and 2024.  The maximum credit in Michigan is $2,229 for 2023. Taxpayers will benefit retroactively for the 2022 increase and will automatically receive a check for the difference if their 2022 return has been filed and they qualify otherwise. These checks are expected to start rolling out in mid-February.
  3. A retirement tax rollback begins to phase in. Some retirees, including public police officers and firefighters, county correction officers, and state troopers and sergeants, will see a state tax break on their pension income when they file their 2023 returns. As more accommodating limits gradually phase into place, more pension recipients can expect savings as well as the law attempts to “repeal the retirement tax” for more Michigan retirees.

To see how the three big changes to Michigan state tax returns affect you, contact your ShindelRock tax professional.