Tax Year 2026Updated July 13, 2026

Does Michigan Tax Tips in 2026?

No - Michigan does not tax qualified tips for 2026 through 2028. Michigan confirms conformity via H.B. 4961 (signed October 7, 2025). The Michigan Treasury published a Taxpayer Notice on January 6, 2026 confirming that the federal tips deduction (IRC §224) reduces Michigan taxable income. Tipped workers save 4.25% on up to $25,000 in qualified tip income. Workers in cities with local income taxes (Detroit: 2.4%) save at both the state and city level.

How Michigan's Tips Tax Treatment Works

Michigan's conformity to the OBBBA tips deduction is confirmed through two authoritative actions.

H.B. 4961 (signed October 7, 2025): Michigan's H.B. 4961 updated the state's IRC conformity framework, capturing the OBBBA provisions including the tips deduction (IRC §224). This legislation made the deduction part of Michigan tax law.

Michigan Treasury Taxpayer Notice (January 6, 2026): The Michigan Department of Treasury published a Taxpayer Notice on January 6, 2026 confirming that tips deductions apply for Michigan income tax purposes for tax years 2026 through 2028. This removes any prior 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. The confirmed tips deduction reduces the city tax base, so tipped workers in these cities save 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	Conforms

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 confirms conformity via H.B. 4961 (signed October 7, 2025). The Michigan Treasury published a Taxpayer Notice on January 6, 2026 confirming tips deductions for tax years 2026 through 2028. The $15,000 deduction saves approximately $637.50 in state tax (4.25%). Detroit residents also save $360 in city income tax (2.4%).

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:
Michigan confirms conformity via H.B. 4961 (signed October 7, 2025). The Michigan Treasury published a Taxpayer Notice on January 6, 2026 confirming tips deductions for tax years 2026 through 2028. The $25,000 deduction saves approximately $1,062.50 in state tax (4.25%). Detroit residents also save $600 in city income tax (2.4%).

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). The confirmed OBBBA tips deduction saves $1,062.50 (state) plus $600 (Detroit city) = $1,662.50 in combined savings on the full $25,000 cap. 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 provides additional savings beyond the personal exemption.

Conformity Confirmed: Tax Years 2026 Through 2028

Michigan's conformity to the OBBBA tips deduction is confirmed via H.B. 4961 (signed October 7, 2025) and the Michigan Treasury Taxpayer Notice published January 6, 2026. The deduction applies for tax years 2026 through 2028. Workers and tax preparers can monitor michigan.gov/taxes for any subsequent updates.

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?

Yes. Michigan confirms conformity via H.B. 4961 (signed October 7, 2025). The Michigan Treasury published a Taxpayer Notice on January 6, 2026 confirming tips deductions for tax years 2026 through 2028. The federal tips deduction (IRC §224) reduces Michigan taxable income.

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. With conformity confirmed, qualified tip income up to the federal cap is deducted from Michigan taxable income, saving tipped workers 4.25% on the deducted amount. Michigan also offers a $5,900 personal exemption (per person for 2026), which reduces overall taxable income but is separate from the tips deduction.

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. The confirmed OBBBA tips deduction also reduces the base for city income taxes, providing savings at both the state and city level.

When will Michigan issue guidance on OBBBA tips conformity?

Michigan has confirmed conformity. The Michigan Treasury published a Taxpayer Notice on January 6, 2026 addressing the OBBBA tips deduction. Workers and tax preparers can monitor michigan.gov/taxes for any additional guidance or updates.

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. With the tips deduction now confirmed, Michigan workers 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?

Yes, you may claim the tips deduction on your Michigan return. Michigan has confirmed conformity via H.B. 4961 and the Michigan Treasury Taxpayer Notice of January 6, 2026. Consult a tax professional for personalized guidance on your specific situation.