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Michigan residents may encounter additional income taxes if they live or work in certain cities. Understanding City Income Taxes in Michigan is important to know how where you live might effect how much you pay. These taxes fund local government operations. Here’s a breakdown of how city income taxes work in Michigan, including rates and who must pay them.

Live in Michigan? Need tax help? Contact ATS 

Overview of City Income Taxes

City income taxes in Michigan apply to individuals and businesses operating within specific city limits. Unlike the state’s flat income tax, these taxes vary by city. Only a few Michigan cities impose these taxes, including Detroit, Grand Rapids, Lansing, and Flint. The income tax applies differently to residents, non-residents, and businesses.

Tax Rates for Residents and Non-Residents

Each city sets its own income tax rates. Residents typically pay a higher rate than non-residents. Here are some examples:

• Detroit: Residents pay 2.4%, while non-residents pay 1.2%.
• Grand Rapids: Residents pay 1.5%, and non-residents pay 0.75%.
• Lansing: Residents are taxed at 1%, and non-residents at 0.5%.
• Flint: Residents pay 1%, and non-residents pay 0.5%.

Rates for residents are based on all income earned, regardless of where it is earned. Non-residents are taxed only on income earned within the city limits.

Who Must File City Income Taxes?

Any individual who lives in or earns income in a city with a local tax must file. This includes:

• Residents who work in or outside the city.
• Non-residents who work within the city limits.
• Businesses operating in the city.

Most cities offer a specific income tax form for residents and non-residents. Filing deadlines typically align with state and federal tax deadlines.

Exemptions and Deductions

Michigan’s city income taxes include standard exemptions. For example, Detroit allows a personal exemption of $600 per taxpayer and each dependent. Some cities also permit deductions for retirement income or specific business expenses.

How Are City Income Taxes Collected?

For employees, city taxes are often withheld directly from paychecks by employers. Employers operating in cities with income taxes must ensure proper withholding. Self-employed individuals or freelancers must calculate and pay their city taxes directly. Quarterly estimated payments may be required.

Impact on Businesses

Businesses in cities with local income taxes must pay taxes on their income earned within the city. They may also be responsible for withholding employee city taxes. Failure to comply can result in penalties and interest.

Why Do Cities Impose Income Taxes?

City income taxes provide essential revenue for local services. These funds support public safety, infrastructure, parks, and community programs. Cities like Detroit rely heavily on income tax revenue to maintain city operations.

How to Stay Compliant

Taxpayers should review their local city tax requirements each year. Check city websites or contact local tax offices for updates. Filing correctly and on time avoids penalties.

City income taxes in Michigan ensure cities can provide vital services. Understanding the rules helps residents and businesses meet their tax obligations efficiently.

Michigan Vehicle Trade In Tax Credit: Unique “Sales Tax on the Difference” Policy: Saving Money When Trading Vehicles

Michigan stands out among states with its unique “Sales Tax on the Difference” policy. This law offers significant savings for residents trading in their vehicles.

Live in Michigan? Need Tax Guidance? Contact ATS Advisors Today

What Is the “Sales Tax on the Difference” Policy?

The “Sales Tax on the Difference” policy allows vehicle buyers to pay sales tax only on the difference between the trade-in value and the new vehicle price. This reduces the taxable amount, leading to considerable savings for Michigan drivers.

For example, if you trade in a car worth $10,000 toward a new vehicle priced at $30,000, you only pay sales tax on $20,000. Without this policy, sales tax would apply to the full $30,000.

Why Does This Policy Exist?

This policy aims to ease the financial burden on Michigan residents purchasing vehicles. By recognizing the value of trade-ins, the state helps consumers keep more money in their pockets. It’s especially beneficial for those upgrading to newer models or purchasing more expensive vehicles.

Who Benefits from the Policy?

Anyone trading in a vehicle when buying a new or used vehicle benefits from this tax break. Michigan car dealerships automatically apply the tax savings at the time of purchase, making the process seamless for buyers.

Private sales do not qualify. The policy only applies to transactions involving licensed dealerships.

How Much Can You Save?

Savings depend on the trade-in value and the vehicle’s sales tax rate. Michigan’s current sales tax rate is 6%. For a trade-in valued at $15,000, the policy saves you $900 in taxes.

The higher your trade-in value, the more you save. This makes trading in a vehicle an attractive option for cost-conscious buyers.

How to Take Advantage of the Policy

Taking advantage of this policy is straightforward:

1. Work with a licensed Michigan dealership.
2. Ensure the trade-in value is documented in the purchase agreement.
3. Confirm the tax calculation reflects the trade-in deduction.

The dealership handles the tax paperwork, so buyers only need to ensure accuracy in the contract.

Common Misunderstandings

Some buyers assume the policy applies to private vehicle sales, but it does not. Others believe all vehicle purchases qualify automatically, which is only true when a trade-in is involved.

Buyers also occasionally forget to verify the trade-in value on their contract, potentially missing out on the full tax benefit.

Potential Policy Changes

There has been periodic discussion about modifying or eliminating the policy. Critics argue it reduces state tax revenue, while supporters highlight its consumer-friendly benefits. For now, the policy remains a unique advantage for Michigan vehicle buyers.

Final Thoughts

Michigan’s “Sales Tax on the Difference” policy is a hidden gem for vehicle buyers. By lowering the taxable amount through trade-ins, this law helps residents save money on their vehicle purchases. If you’re considering trading in your car, make sure to take full advantage of this valuable tax break!

Michigan Vehicle Trade In Tax Credit

For more information, visit michigan.gov

Michigan Property Tax and the Principal Residence Exemption (PRE)

Michigan’s Principal Residence Exemption (PRE) attracts attention because it reduces property taxes for primary homeowners. This exemption excludes a portion of a home’s taxable value from school operating taxes, typically 18 mills. Homeowners who qualify save $1,800 for every $100,000 in taxable value.

Live in Michigan and need tax assistance? Contact ATS Advisors today.

How the Michigan Principle Residence Exemption (PRE) Works

The PRE applies only to homes used as a primary residence. Secondary properties like vacation homes and rentals do not qualify. Homeowners must file a Principal Residence Exemption Affidavit (Form 2368) with their local assessor. Filing must occur by June 1 to claim the exemption for the current year.

The exemption stays active unless the homeowner moves or changes the property’s use. Not notifying the assessor of changes leads to penalties.

Why the PRE Stands Out

The PRE garners attention because it offers significant financial benefits and comes with unique rules. Many homeowners focus on this exemption to reduce tax costs and avoid issues.

1. It Saves Money: The PRE reduces the tax bill noticeably for homeowners, making it a key concern for many.
2. Misunderstandings Create Problems: Some people misuse or misunderstand the exemption and face fines or audits as a result.
3. Taxable Value Disputes: Homeowners sometimes dispute the property’s taxable value or its qualification as a principal residence.
4. Transfers Confuse Many: Buyers must reapply for the exemption when purchasing a home, which confuses some homeowners.

Common Challenges

Some people wrongly assume the PRE applies to all property taxes. Others fail to remove the exemption when renting their property. These errors often surface during audits or tax filings. Homeowners sometimes learn of penalties when reporting rental income that contradicts their PRE claim.

Maximizing the PRE Benefits

To benefit from the PRE, homeowners must follow the rules carefully. Filing the correct forms on time prevents future issues. They also need to update local assessors about any changes in residency or property use. Staying compliant avoids fines and protects long-term savings.

The PRE continues to be a topic of discussion because it impacts so many Michigan residents. By understanding the process and maintaining accuracy, homeowners can maximize their savings while avoiding costly mistakes.

Michigan families receive significant tax relief with the recent increase in the Earned Income Tax Credit (EITC). Starting in 2024, the Michigan EITC rises from 6% to 30% of the federal credit. This increase puts more money back into the hands of working families, helping reduce financial strain. Do y0u live in Michigan? Want the most out of your tax return this season? Contact ATS Advisors Today

What is EITC?

The EITC is a refundable credit that supports low- and moderate-income working individuals and families. It reduces the taxes owed or increases refunds for those who qualify. Families with children tend to benefit most, though some childless workers also qualify.

This 30% boost provides substantial financial relief for eligible Michigan residents. For example, if your federal EITC is $3,000, you can now receive $900 from Michigan instead of $180. This increase can make a meaningful difference for families, covering essential expenses such as housing, utilities, or groceries.

Eligibility:

Eligibility for the EITC depends on income, family size, and filing status. In 2024, families earning under $59,187 may qualify, depending on their circumstances. Single individuals and married couples without children may also receive benefits if they meet lower income thresholds.

The credit especially helps families in urban and rural areas where income disparities remain significant. It supports local economies by enabling recipients to spend more on necessities within their communities. This creates a ripple effect, strengthening Michigan’s economic stability.

Claiming the Michigan EITC is straightforward. Taxpayers simply file their state and federal returns and claim the federal EITC. The Michigan Treasury Department calculates the 30% state match automatically. To ensure accuracy, you should check eligibility requirements and provide all necessary documentation when filing.

Governor Gretchen Whitmer and lawmakers championed this increase, emphasizing its potential to reduce child poverty statewide. By significantly expanding the credit, Michigan aims to narrow the gap between low-income families and financial security. Experts predict this increase will benefit nearly 750,000 Michigan households in 2024.

The EITC encourages employment by rewarding work, making it a powerful tool for both economic and social improvement. Families see direct benefits while employers may experience increased productivity from less financially stressed workers.

Financial advisors recommend that eligible taxpayers plan how to use their increased refunds effectively. Consider paying down debt, saving for emergencies, or investing in education. These strategies can help maximize the long-term benefits of the EITC increase.

Community organizations and tax preparation centers often provide free help to ensure eligible individuals claim the EITC. Resources like Volunteer Income Tax Assistance (VITA) programs guide taxpayers through the process at no cost.

Conclusion:

The EITC increase highlights Michigan’s commitment to improving economic outcomes for working families. With greater financial flexibility, more Michigan residents can focus on building a secure future. This policy shift represents a win for families, communities, and the state’s economy.

For more information, visit Michigan’s Department of Treasury website or consult a qualified tax professional. Make sure you claim your EITC benefits this tax season.

Michigan 30% EITC Increase – 2024

Michigan has a number of tax rules that are specific to the state. Here are 8 Michigan Specific Tax Rules:

1. Michigan Individual Income Tax

• Flat Income Tax Rate: Michigan imposes a flat income tax rate of 4.05% (as of 2023), which is applied to all residents regardless of income level.
• City Income Taxes: Some cities in Michigan, including Detroit, Grand Rapids, and Lansing, impose additional local income taxes. For example, Detroit’s tax rates are 2.4% for residents and 1.2% for non-residents who work in the city.
• Michigan Homestead Property Tax Credit: Residents with low to moderate incomes may qualify for a credit on their state income taxes to offset property taxes paid on their principal residence. This credit is subject to income and property value limits.

2. Michigan Sales and Use Tax

• Sales Tax Rate: Michigan has a 6% sales tax on most retail goods and services. Michigan does not have a local sales tax, so the 6% rate is uniform across the state.
• Exemptions: There are specific exemptions, including groceries, prescription drugs, and certain medical equipment.
• Use Tax: If a resident purchases goods from out of state and does not pay sales tax, they are required to report and pay Michigan’s 6% use tax.

3. Michigan Corporate Income Tax

• Michigan imposes a 6.0% Corporate Income Tax (CIT) on corporations with gross receipts over $350,000. S-corporations and partnerships generally do not pay the CIT but are subject to personal income taxes on their profits.

4. Michigan Small Business Tax

• Flow-Through Entity Tax: Michigan allows pass-through entities (like LLCs, partnerships, and S-corporations) to elect to pay an entity-level tax on behalf of its owners, which is at a rate of 4.05%. This helps business owners deduct Michigan taxes at the federal level under certain conditions.

5. Michigan Property Tax

• Principal Residence Exemption (PRE): Homeowners who occupy their home as their principal residence can exempt it from a portion of local school operating taxes, reducing property tax liability.
• Uncapping Property Taxes: Michigan has a “taxable value” system that limits increases in property tax assessments until the property is sold. After a sale, the property’s taxable value may “uncap” and increase to the current market value.

6. Michigan Retirement Tax Rules

• Tax on Pensions and Retirement Income: Depending on the taxpayer’s birth year, Michigan may or may not tax retirement income. People born before 1946 generally are exempt from Michigan tax on Social Security, private pensions, and public pensions. People born after 1952 may have limited or no exemptions.

7. Michigan Motor Vehicle Registration Tax

• Michigan levies an annual registration tax on motor vehicles, which is based on the vehicle’s list price and age rather than weight or horsepower.

8. Michigan Business Personal Property Tax

• Small Business Exemption: Small businesses with personal property (machinery, equipment, etc.) that have a combined value of less than $180,000 are eligible for an exemption from Michigan’s personal property tax.

9. Industrial Processing Exemption

• Businesses involved in manufacturing or industrial processing can claim an exemption on the sales and use tax for equipment and machinery used in the production process.

Have a small business? Need a new accountant? Contact ATS Advisors for more details.

Michigan Pension Tax Phase Out: The Lowering MI Costs Plan

Intro

The state of Michigan is currently implementing a significant change in its tax policies through the “Lowering MI Costs Plan.” Signed into law as Public Act 4 of 2023, this new legislation gradually phases out the pension tax. This move is designed to reduce financial strain on retirees while promoting fairness in taxation across the state.

Live in MI? Need your taxes done or tax guidance? Contact ATS Advisors

Phase in of Pension Tax Deduction under the Lowering MI Cost Plan

Prior to the Lowering MI Costs Plan, Michigan taxed retirement income. Since 2011, residents aged 67 and below have seen pensions and retirement benefits taxed under a system enacted by former Governor Rick Snyder. For many retirees, this policy created financial pressure. The new plan seeks to provide relief by gradually reducing taxes on pensions and other retirement income.

Starting in 2023, Michigan retirees are already benefiting from this law. It increases exemptions and reduces the overall taxable amount of pension income for certain individuals. The plan will roll out over several years, with the full phase-out expected by 2026. As each year passes, retirees will see a progressively larger portion of their retirement income exempt from state taxes.

For example, under the new law, retirees born between 1946 and 1952 will receive immediate tax relief. They will benefit from the higher pension income exemptions that this law offers. Residents born after 1952 will also benefit in the coming years. The gradual nature of the phase-out ensures a smooth transition without immediate fiscal shocks to the state budget.

The pension tax phase-out is part of a broader effort by Michigan lawmakers to make the state more financially friendly for retirees. Reducing taxes on pensions encourages retirees to stay in Michigan rather than move to states with no pension taxes. This, in turn, helps retain a vital portion of the state’s population while reducing their tax burden.

The financial impact of this law is substantial. According to state estimates, Michigan retirees will save an average of $1,000 per year once the pension tax is fully phased out. This savings can make a significant difference, particularly for retirees living on fixed incomes.

Governor Gretchen Whitmer and other proponents of the law emphasize its importance in improving the quality of life for Michigan retirees. The Governor describes the law as a step toward restoring fairness in the tax system, particularly for older residents. Many seniors are welcoming the law, seeing it as a positive step toward financial relief and stability.

However, critics express concern about the fiscal impact on the state’s budget. The Michigan Department of Treasury expects the full phase-out of the pension tax to reduce state revenue by around $500 million annually by 2026. Proponents argue that this reduction in revenue will be offset by the retention of retirees in the state, who contribute to the local economy in other ways.

Conclusion

In summary, the Lowering MI Costs Plan, enacted through Public Act 4 of 2023, represents a positive shift for Michigan retirees. By phasing out the pension tax over several years, the state aims to alleviate financial burdens on its aging population while encouraging them to stay in Michigan. This tax policy change is a crucial part of the broader effort to lower costs and improve the quality of life for residents in Michigan.

Tax Breaks for Electric Vehicles in Michigan: A Green Incentive

Michigan offers tax breaks for electric vehicles (EVs) to encourage green transportation. These incentives benefit both residents and the environment. The state government is committed to reducing carbon emissions. Therefore, purchasing an electric vehicle in Michigan comes with financial perks.

Live in Michigan and need tax assistance? Call ATS Advisors!

Federal Credit

One of the most significant incentives is the federal tax credit. Michigan residents who purchase a new EV may qualify for a federal tax credit of up to $7,500. This credit is a major financial boost, making EVs more affordable. The exact amount depends on the vehicle’s battery capacity. However, it’s important to note that this credit is non-refundable, meaning it only applies to the taxes you owe.

State Credits

On the state level, Michigan provides additional benefits. Although Michigan doesn’t offer a state tax credit, there are other incentives to consider. For example, Michigan utilities offer rebates for installing home EV chargers. These rebates can range from $500 to $1,000, depending on the provider. DTE Energy and Consumers Energy are two of the largest utilities offering such rebates. Installing a home charger not only reduces your carbon footprint but also increases the convenience of owning an EV.

Michigan also has a sales tax exemption for certain EV-related purchases. This exemption applies to charging stations and related equipment. By eliminating sales tax, the state makes it more affordable for residents to set up home charging infrastructure. This exemption can save buyers hundreds of dollars, depending on the cost of the equipment.

For businesses, Michigan offers tax incentives for EV fleet purchases. Companies can take advantage of federal tax deductions for EVs used in business operations. These deductions lower the overall cost of transitioning to an electric fleet. Additionally, businesses can benefit from the state’s utility rebates when installing commercial charging stations.

Local governments in Michigan are also joining the EV movement. Some cities offer additional incentives, such as reduced parking fees for EVs. These local incentives, though smaller, contribute to the overall appeal of owning an electric vehicle.

Conclusion

In conclusion, Michigan’s tax breaks and incentives make owning an electric vehicle more appealing and affordable. With federal tax credits, utility rebates, and state exemptions, Michigan residents can save significantly on their EV purchases. These incentives support the state’s commitment to reducing environmental impact while promoting green technology.