Michigan 2026 Tax Changes — What the One Big Beautiful Bill Act (OBBBA ) Means for Residents
On January 1, 2026, the federal tax landscape underwent a historic and positive transformation. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made permanent many of the major tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) and introduced new, powerful benefits for taxpayers. The long-feared 2026 “tax cliff” has been avoided.
For residents of Michigan, this is exceptionally good news. In a state powered by industry, manufacturing, and skilled trades, these permanent federal tax cuts provide significant and welcome relief. This guide provides a clear, localized breakdown of how the permanent tax laws under OBBBA will impact your income, business, and financial strategy in 2026 and beyond.
Federal Changes Bring Relief to Michigan Taxpayers
While Michigan has its own flat-rate income tax, your federal tax bill is a major part of your overall financial picture. OBBBA has made that picture much brighter.
Lower Federal Tax Brackets are PERMANENT
The biggest news is that the lower individual income tax rates from the TCJA are now permanent. The anticipated jump in federal tax rates has been avoided.
👉 Michigan Impact: This is a crucial win for Michigan’s working families. For the state’s large population of auto industry workers, skilled tradespeople, and manufacturing employees, having lower, predictable federal tax rates provides much-needed financial stability.
The Federal Standard Deduction is PERMANENT
The higher federal standard deduction, which simplifies tax filing for millions, is also here to stay.
👉 Michigan Impact: A permanent, higher federal standard deduction is a direct benefit for the majority of Michiganders. It provides a substantial, straightforward deduction on your federal return, lowering your taxable income without the need for complex itemization.
The Federal Standard Deduction is PERMANENT
The higher federal standard deduction, which simplifies tax filing for millions, is also here to stay.
👉 Michigan Impact: A permanent, higher federal standard deduction is a direct benefit for the majority of Michiganders. It provides a substantial, straightforward deduction on your federal return, lowering your taxable income without the need for complex itemization.
The QBI Deduction is PERMANENT and ENHANCED (Federal Level)
This is a critical update for Michigan’s many small businesses, independent contractors, and entrepreneurs. The 20% Qualified Business Income (QBI) Deduction is not expiring. OBBBA has made it a permanent part of the federal tax code and even improved it.
Important Note for Michigan: Michigan is a non-conforming state, meaning it does not offer a state-level QBI deduction. However, this powerful 20% deduction remains fully available on your federal tax return.
This is a major federal benefit for Michigan’s:
- Skilled trades, construction contractors, and builders
- Small manufacturing and supply chain businesses
- LLCs, S-Corps, and Sole Proprietors
- Real estate investors and landlords
Key OBBBA Enhancements to QBI:
- Permanence: The 20% federal deduction is locked in for 2026 and beyond.
- Minimum Deduction: A new $400 minimum federal deduction is available for any business with at least $1,000 of qualified income.
👉 Michigan Impact: For the thousands of small businesses that form the backbone of Michigan’s economy, the permanent federal QBI deduction provides certainty and significant federal tax savings.
New Federal Tax Breaks for Michigan Residents
OBBBA also introduced several new federal deductions that will directly benefit many in Michigan:
- Overtime Deduction: Deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay—a massive benefit for workers in Michigan’s world-class auto and manufacturing industries.
- Senior Deduction: An additional $6,000 deduction for individuals 65 and older, providing federal tax relief for Michigan’s retirees (subject to phase-out).
- Auto Loan Interest Deduction: Deduct up to $10,000 in interest on new personal vehicle loans from 2025-2028.
Michigan-Specific Tax Considerations for 2026
Michigan’s State Tax and Federal AGI
Michigan has a flat 4.25% income tax rate. Because the state uses federal Adjusted Gross Income (AGI) as the starting point for its calculations, the permanent federal deductions under OBBBA help keep your AGI lower. This provides a positive starting point for calculating your Michigan state tax.
A Major Win for Manufacturing and Skilled Trades
The new federal deduction for overtime income is a game-changer for one of Michigan’s most important sectors. For the first time, a significant portion of the income earned from overtime hours can be deducted on your federal return, lowering your overall tax burden.
Real Estate and Short-Term Rentals (STRs)
For property owners in growing markets like Grand Rapids, Ann Arbor, and the Lake Michigan shoreline, OBBBA brings welcome news. The 100% bonus depreciation for qualified property is now permanent. This allows real estate investors and STR hosts to immediately write off the cost of certain assets on their federal return, making strategies like cost segregation incredibly powerful.
Retirement Income in Michigan
Michigan taxes most retirement income, though some deductions are available depending on your age. The good news is that the permanent lower federal tax rates under OBBBA reduce the overall tax burden on withdrawals from IRAs and 401(k)s, leaving more money in your pocket during your retirement years.
What Michigan Taxpayers Should Do Now
- Update Your Tax Plan: Your old strategy, based on the fear of expiring tax cuts, is obsolete. It’s time to build a new plan based on permanence and new federal opportunities.
- Integrate Federal and State Planning: Work with a professional who understands how to maximize permanent federal benefits while navigating Michigan’s specific state tax laws.
- Maximize New Deductions: If you work overtime, start planning now to document your hours to take full advantage of this new federal deduction.
- Leverage Real Estate Benefits: Plan your real estate investments to take full advantage of permanent 100% bonus depreciation on your federal return.
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 Your Personalized 2026 Michigan Tax Plan
The tax landscape has permanently shifted in your favor. Don’t operate on outdated assumptions. A personalized strategy session will ensure you are structured to maximize every new and permanent benefit under OBBBA, fully integrated with Michigan’s unique economic and tax environment.
Because tax situations vary by individual and business, many Michigan residents choose to work with a qualified tax professional. You can explore available Michigan tax services here: