State Treasurer Rachael Eubanks has announced that Michigan’s income tax will drop from 4.25 percent to 4.05 percent for the 2023 tax year.

The rate cut was triggered by a 2015 law that established an automatic income tax rate reduction when the state General Fund increases more than 1.425 times the rate of inflation. The General Fund saw a dramatic 63.3 percent increase, or $7.3 billion, in 2022 thanks to increased tax revenues related to federal COVID-19 pandemic funding. The rate reduction in the income tax act will benefit businesses that are organized as non-corps, including sole proprietorships, partnerships, LLCs and S-Corps.

Attorney General Dana Nessel issued an opinion earlier this week that the rate reduction would need to be evaluated each year based on the General Fund balance as compared to the prior year. During the legislative debate, Republicans asserted the 2015 language would make the rate change permanent. We do not anticipate the Democratic-led Legislature will challenge Attorney General Nessel’s opinion.

MMA’s Government Affairs team is available to answer member questions on this and other policy matters. Contact MMA’s tax policy expert, Mike Johnston.