Michigan 2026 Tax Changes — What Residents & Business Owners Must Know
On January 1, 2026, major federal tax changes take effect as previous provisions expire and updated federal rules continue forward.
Michigan residents — who pay a flat state income tax and various local taxes — will feel these changes strongly because Michigan starts its tax calculation with federal AGI.
- W-2 earners in Detroit, Grand Rapids, Ann Arbor, Lansing, Kalamazoo, Flint
- Auto industry workers, skilled trades, and manufacturing employees
- Small business owners, LLCs, S-Corps, and contractors
- Real estate investors, landlords, and STR owners
- Families with children
- Retirees drawing pensions or IRA withdrawals
- Dual-income households
- Remote workers who relocated to Michigan
Below is the full breakdown of how 2026 tax changes affect Michigan taxpayers.
Key Federal Changes Affecting Michigan Residents
Standard Deduction Shrinks in 2026
This reduction increases taxable income for many Michigan residents, especially:
- families with children
- homeowners
- middle-income earners
- retirees drawing taxable retirement income
Michigan’s state tax calculation also uses federal AGI, so the reduced deduction increases both federal and Michigan state taxable income.
Federal Tax Brackets Increase
- 12% → 15%
- 22% → 28%
- 24% → 31%
- auto industry workers
- manufacturing and trades
- teachers and nurses
- state and municipal employees
- dual-income families in metro areas
- households earning between $60K–$250K
Higher brackets push more Michigan workers into higher federal tax liability.
QBI (20% Business Deduction) Remains Federal; Michigan Does Not Apply It
QBI stays federally, but Michigan does not offer a matching state-level QBI deduction.
- Federal taxable income may decrease
- Michigan taxable income does not
- Business owners must plan accordingly
- contractors and trades
- small manufacturing shops
- transportation and logistics workers
- real estate agents and brokers
- LLCs, S-Corps, and freelancers
Child Tax Credit Shrinks
- Federal Child Tax Credit reduces from about $2,000 → roughly $1,000 per child
- Refundability decreases
- Phase-out thresholds tighten
Families in Detroit Metro, Grand Rapids, Ann Arbor, and Lansing will notice smaller refunds or higher tax liabilities.
Marriage Penalty Returns
Michigan has many dual-income households.
- joint incomes move couples into higher federal brackets faster
- federal credit eligibility shrinks
- increases carry over into Michigan taxable income
Couples earning between $75K–$200K combined will be impacted the most.
Michigan-Specific Tax Considerations
1. Michigan Uses Federal AGI to Determine State Taxable Income
Michigan assesses a flat state income tax rate, but taxable income begins with federal AGI.
- increase Michigan taxable income
- increase state tax owed
- reduce state-level refund potential
This affects all taxpayers at all income levels.
2. Real Estate Owners & Investors Will Feel Major Changes
- Detroit
- Grand Rapids
- Ann Arbor
- Lansing
- Traverse City
- Kalamazoo
— will be affected by:
- capital gains changes
- reduced depreciation
- new STR rules
- updated rental loss rules
- timing considerations for selling or refinancing
As home values rise in many Michigan counties, capital gains planning becomes essential.
3. Short-Term Rental (STR) Owners Face Updated Rules
- Lake Michigan shoreline
- Traverse City
- Ann Arbor
- Detroit
- Grand Rapids
- smaller bonus depreciation
- stricter STR recordkeeping
- tighter material participation rules
- changes to rental loss eligibility
4. Retirement Income Planning Is Affected by Federal Changes
Michigan taxes some retirement income depending on age and income level.
- IRA withdrawals
- pension payouts
- 401(k) distributions
- investment account withdrawals
Michigan retirees often see greater combined tax impact due to federal bracket increases.
Who Is Hit Hardest in Michigan (2026)
- Dual-income households
- Workers in auto manufacturing & skilled trades
- Homeowners
- Business owners and contractors
- Real estate investors
- STR owners
- Families with children
- Retirees drawing taxable retirement income
- Middle-income earners
What Michigan Residents Should Do Before December 31, 2025
- Review federal and Michigan withholding
- Maximize retirement contributions before brackets increase
- Evaluate Roth conversions
- Review business structure (LLC vs S-Corp)
- Document STR and rental activity
- Assess capital gains exposure
- Plan property or investment sales strategically
- Build a complete 2025–2026 tax strategy
Michigan 2026 Tax FAQ
Does Michigan conform to QBI?
No — Michigan does not offer a QBI deduction.
Will Michigan taxes rise in 2026?
Rates remain the same, but taxable income increases due to federal changes.
Are families affected?
Yes — reduced credits and higher federal taxable income reduce refunds.
Are STR owners impacted?
Yes — depreciation and participation requirements change.
Are retirees affected?
Yes — federal bracket changes increase the tax cost of retirement withdrawals.
Get a 2026 Michigan Tax Strategy
Michigan residents face meaningful 2026 changes due to reduced deductions, higher federal brackets, credit shifts, and new rules affecting business owners, real estate investors, families, and retirees.
A personalized tax plan ensures you’re prepared before the new rules take effect.