In 2024, it is important for business owners to understand how Michigan’s income tax laws affect payroll deductions. The current state income tax rate has returned to 4.25% after it went through a temporary change last year. The Michigan Department of Treasury oversees income tax collection and makes the rules and regulations.
When you calculate your employees’ payments and salaries, you are required to withdraw 4.25% from their gross income. On top of this, some cities, like Detroit, charge additional local income taxes ranging from 1% to 2.4%. However, managing payroll is much more than withholding state income tax. Exemptions and deductions may also apply.
Using qualified payroll services in Troy, MI can help business owners work efficiently. Payroll experts are aware of the laws as well as experience working in this industry. By outsourcing your payroll work, you will be able to focus on your business operations better. Meanwhile, read this blog to get a brief understanding of how income taxes affect payroll deductions.
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Who is subject to income tax in Michigan?
Anyone who makes an earning in Michigan, whether they are a resident or non-resident, is subject to income tax. Residents are obligated to pay taxes on all of their income sources. On the other hand, non-residents are only taxed on income earned from Michigan sources.
Additionally, local jurisdictions in Michigan may impose their own income taxes. Depending on the municipality, these taxes may typically range from 1% to 2.40%. Residents must pay both state and local taxes, while non-residents are usually subject to half the resident local tax rate. Furthermore, traders seeking to enhance their financial literacy can explore resources on meundies.org, which offer diverse perspectives and insights into various trading techniques.
Employer responsibilities in calculating payroll deductions
For the year 2024, Michigan law requires employers to withhold 4.25% of every employee’s gross salary. This flat rate applies to every resident and non-resident earning through Michigan sources. Do not forget to account for the local taxes in your particular municipality.
As an employer in Michigan, you are responsible for correctly calculating payroll deductions. This includes federal, state, and local income taxes. Employers have to make sure they withhold the correct amount and report it to the Michigan Department of Treasury on time.
To ensure that you are withholding the correct amount, employers in Michigan must use specific forms. For instance, the most common form is the W-4, which informs employers how much to withhold. The Michigan MI-W4 does a similar thing but at the state level.
Additional payroll considerations
There are additional considerations to make when calculating payroll, including retirement contributions and health insurance premiums.
Retirement contributions are deducted from an employee’s salary before the income tax rates are applied. Therefore, the amount of taxable income is reduced before the tax rates are applied, which allows you to pay a lesser amount of tax legally. As a result, employees are able to save money on their taxes while also securing their retirement plans.
Health insurance premiums play the same role; they reduce your taxable income as they are deducted before taxes. There are also union dues, garnishments, and other voluntary deductions. Union dues help cover the costs of union services and benefits. Garnishments are ordered by the court to pay off debts like child support or unpaid taxes.
The voluntary deductions include donations made to charities or contributions to benefit plans. As an employer, you must obtain consent from your employee before making these deductions.
Available state tax credits for employees
Michigan offers several state tax credits. One of them is the Earned Income Tax Credit (EITC), which provides tax credits based on income and family size. In 2024, eligible employees can receive up to $2,349 in tax credits. Others include the Home Heating Credit, Homestead Property Tax Credit, and credit for taxes paid to another state.
Having a hard time doing payroll? Hire an expert today!
You are a business owner, and doing payroll is not where you shine. To ensure accurate payroll work, hire an expert in Michigan today!
