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Tax & Assurance Guidance

Reduced Michigan Income Tax Rate for the 2023 Tax Year

Posted on May 22, 2023 by

Margaret Amsden

Margaret Amsden

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Michigan’s state income tax rate will be reduced from 4.25% to 4.05% for the 2023 tax year. This temporary tax rate reduction will apply to all individuals and fiduciaries. The announcement was made by Michigan Treasurer Rachael Eubanks on March 29, 2023 following the release of the state’s fiscal year 2022 Annual Comprehensive Financial Report.  

Why is the Michigan State Income Tax Rate Reduced for the 2023 Tax Year? 

Michigan law, enacted in 2015, requires a temporary reduction of state income tax if the general fund grows faster than the rate of inflation for any year starting in 2023. The general fund increased by 63.3% in 2022 due to increased tax revenues from federal COVID-19 pandemic funding, which means the conditions have been met, so the tax rate will be reduced by .20 percentage points. The rate reduction is valid for just one year and will be effective January 1, 2023 for the 2023 tax year. 

How Will Tax Withholding Amounts be Impacted by the Rate Reduction? 

The withholding rate tables for the 2023 tax year will not reflect the revised income tax rate. If individuals or fiduciaries have questions about the rate reduction and tax withholding amounts, they should reach out directly to their employer or administrator. Be on the lookout for updated forms, instructions and guidance from The Department of Treasury to reflect Michigan’s new annual income tax rate for the 2023 tax year. 

Who Will Benefit from the Rate Reduction? 

The MI income tax rate reduction will benefit individuals including sole proprietors, partners in partnerships, LLC members and S-Corporation shareholders. 

Will the Rate Reduction be Evaluated Each Year? 

Michigan Attorney General Dana Nessel issued an opinion that the rate reduction would need to be evaluated every year based on the general fund balance compared to the prior year. However, Republicans stated the rate change would be permanent based on language in the 2015 tax law. Stay tuned to see how this plays out. 

Continue the Conversation 

If you have questions about the reduced Michigan income tax rate for the 2023 tax year or would like to discuss any other tax and accounting matters, please reach out. We look forward to helping you navigate the latest lax laws. 

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Margaret Amsden

Shareholder, Private Client Services

Margaret leads the firm’s private client services group as the point person for individual, estate and succession planning tax strategies.

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