Tax Year 2026Updated July 13, 2026

Does Michigan Tax Tips in 2026?

Likely no - Michigan is expected to recognize the federal tips deduction, but official guidance is pending. Michigan's HB 4961 IRC adoption (reported by Forvis Mazars) appears to capture the OBBBA, which would mean the federal tips deduction (IRC §224) reduces Michigan taxable income. However, the Michigan Department of Treasury has not yet published a Revenue Administrative Bulletin confirming this treatment. If confirmed, tipped workers would save 4.25% on up to $25,000 in qualified tip income. Workers in cities with local income taxes (Detroit: 2.4%) could see additional savings.

How Michigan's Tips Tax Treatment Works

Michigan's conformity to the OBBBA tips deduction depends on how its IRC adoption framework incorporates the new provision.

HB 4961 IRC adoption: Michigan's HB 4961 updated the state's IRC conformity framework. According to Forvis Mazars (a national accounting firm), this adoption captures the OBBBA provisions, including the tips deduction (IRC §224). This means the deduction should be part of Michigan's tax law.

Pending Treasury guidance: The Michigan Department of Treasury has not published a Revenue Administrative Bulletin (RAB) or specific guidance confirming the tips deduction applies for Michigan income tax purposes. While Treasury issues RABs regularly to clarify tax law changes, the OBBBA-specific guidance has not yet appeared. This creates uncertainty for workers and tax preparers.

City income tax interaction: Michigan is one of the few states where some cities levy their own income taxes. Approximately 24 cities impose local income taxes, with Detroit's 2.4% resident rate being the highest. If the tips deduction flows through to the city tax base, tipped workers in these cities would see savings at both the state and city level.

Federal Tips Deduction Quick Reference

Detail	Value
IRC Section	§224 (OBBBA)
Maximum deduction	$25,000 tips
Deduction type	Above-the-line (Schedule 1-A)
FICA still applies?	Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?	No (MFJ or Single/HoH only)
Effective dates	Jan 1, 2025 – Dec 31, 2028
Michigan treatment	Partial (own exclusion)

Worked Examples Comparing Federal and Michigan Treatment

Example 1: Restaurant server (single filer, $40,000 income, $15,000 in tips)

Federal return:
Qualified tip income: $15,000
Tips deduction claimed: $15,000 (capped at $25,000)
Estimated federal tax savings: $1,800.00

Michigan return:
Michigan is expected to recognize the federal tips deduction based on HB 4961 IRC adoption (reported by Forvis Mazars), but official Treasury guidance has not been issued. If confirmed, the $15,000 deduction would save approximately $637.50 in state tax (4.25%). Detroit residents could save an additional $360 in city income tax (2.4%). Until Treasury issues specific guidance, these savings are probable but not guaranteed.

Example 2: Bartender (single filer, $70,000 income, $25,000 in tips - federal cap reached)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

Michigan return:
If Michigan confirms conformity to the OBBBA tips deduction, the $25,000 deduction would save approximately $1,062.50 in state tax (4.25%). Detroit residents could save an additional $600 in city income tax (2.4%). Official Treasury guidance is still pending as of August 2026.

Michigan's City Income Taxes Add a Unique Dimension

Unlike most states, several Michigan cities impose their own income taxes independently of the state. The most significant is Detroit, which levies 2.4% on residents and 1.2% on non-residents who work in Detroit. Other cities with local income taxes typically charge 1% on residents and 0.5% on non-residents.

For a tipped worker living in Detroit, the combined state-plus-city rate is 6.65% (4.25% state + 2.4% city). If the OBBBA tips deduction is confirmed, the savings on the full $25,000 cap would be $1,062.50 (state) plus $600 (Detroit city) = $1,662.50 in combined savings. This makes Detroit one of the cities where OBBBA conformity has the largest dollar impact.

Michigan's Personal Exemption System

Michigan uses personal exemptions rather than a standard deduction. For 2026, the personal exemption is $5,900 per person (up from $5,600 in 2025). While this reduces overall taxable income, it does not specifically shelter tip income. The personal exemption is applied before any income-type-specific deductions, so the tips deduction (if confirmed) would provide additional savings beyond the personal exemption.

Conformity Recheck Date - September 1, 2026

Our records indicate that Michigan's OBBBA conformity status should be rechecked on or after September 1, 2026. The Department of Treasury may issue guidance through a Revenue Administrative Bulletin or updated MI-1040 filing instructions. This page will be updated when official guidance is published.

Related Tools

No Tax on Tips Calculator - calculate your federal tips deduction
Michigan Tax Guide - full state tax overview
Michigan Paycheck Calculator
Does Michigan Tax Overtime?
W-2 Code TP: Tips Reporting Guide
W-2 Code TT: Overtime Reporting Guide
All 51 States: Tips & Overtime Tax Map

Frequently Asked Questions

Does Michigan conform to the federal 'no tax on tips' deduction under the OBBBA?

Likely yes, but not officially confirmed. Michigan's HB 4961 IRC adoption (reported by Forvis Mazars, a national accounting firm) appears to capture the OBBBA provisions, including the tips deduction (IRC §224). However, the Michigan Department of Treasury has not published a Revenue Administrative Bulletin or specific guidance confirming the tips deduction applies for Michigan income tax purposes.

What Michigan income tax rate applies to my tip income?

Michigan imposes a flat 4.25% income tax on all taxable income for tax year 2026. If the tips deduction is not recognized, all tip income is taxed at this rate. Michigan also offers a $5,900 personal exemption (per person for 2026), but this does not specifically shelter tip income.

Do Michigan city income taxes also apply to tip income?

Yes. Approximately 24 Michigan cities levy local income taxes. Detroit imposes the highest rate: 2.4% on residents and 1.2% on non-residents who work in Detroit. Other cities typically levy 1% on residents and 0.5% on non-residents. If the OBBBA tips deduction is recognized at the state level, it would likely also reduce the base for city income taxes - but this has not been confirmed.

When will Michigan issue guidance on OBBBA tips conformity?

The Michigan Department of Treasury has not announced a timeline. Our records suggest a recheck date of September 1, 2026. Workers and tax preparers should monitor michigan.gov/taxes for Revenue Administrative Bulletins or Treasury guidance addressing the OBBBA deductions.

How does Michigan's 4.25% flat rate compare to other states for tipped workers?

Michigan's 4.25% rate is moderate compared to other flat-rate states. Indiana's rate is 2.95%, while Kentucky's is 3.5%. Among graduated-rate neighbors, Ohio's top rate is lower but Michigan's single flat rate is simpler. If the tips deduction is confirmed, Michigan workers would save $1,062.50 on the maximum $25,000 deduction at the state level alone - a meaningful benefit.

Should I file my Michigan return assuming the tips deduction applies?

This is a decision to make with your tax preparer. If Michigan's HB 4961 IRC adoption captures the OBBBA (as Forvis Mazars' analysis suggests), claiming the deduction would be consistent with the law. However, without an explicit Revenue Administrative Bulletin from Treasury, there is some uncertainty. Consult a tax professional for personalized guidance.