Michigan LLC Taxes Explained: 4.25% Flat + City Tax (2026)
Michigan keeps state income tax refreshingly simple — a flat 4.25%, no brackets — but the layer that catches founders is local: about two dozen cities levy their own income tax on top. Here's every layer your LLC touches, with an estimator that adds your city's rate to the state math.
Default Michigan LLC income generally passes to owners, with 4.25% individual tax and applicable city income tax. Corporate classification or an eligible FTE election changes the entity analysis. The $25 LARA annual statement is separate from taxes; it is not the complete recurring bill.
- State income tax
- 4.25% flat
- City income tax
- Check actual municipality
- Entity-level tax
- None (default LLC)
- FTE tax election
- 4.25% (SALT workaround)
- Sales tax
- 6% — no local rates
- S-Corp threshold
- Individual wage/cost analysis
The 5 Layers of Michigan LLC Taxation
Federal: income + self-employment tax
Pass-through profits hit your 1040 at your federal bracket, plus 15.3% SE tax on 92.35% of net profit — usually the biggest line.
Michigan state income tax: flat 4.25%
One rate, no brackets — among the simplest state income taxes in the country. Applies to your share of pass-through profits.
City income tax: check the actual municipality
Check Treasury’s current taxing-city list and the actual city’s rates. Residency, work location, sourcing, deductions and employer withholding requirements differ; a single selected rate does not model the complete local return.
Entity level: only the $25 statement
Default Michigan LLC income generally passes to owners, with 4.25% individual tax and applicable city income tax. Corporate classification or an eligible FTE election changes the entity analysis. The $25 LARA annual statement is separate from taxes; it is not the complete recurring bill.
Sales tax: 6% (if applicable)
Flat statewide, zero local add-ons. See Step 7.
Limited 2026 State and Selected-City Illustration
Michigan LLC Tax Estimator
Limited 2026 single-owner illustration: assumes only displayed earned income, $184,500 Social Security wage base and an illustrative single-filer $200,000 additional-Medicare threshold. Uses 4.25% plus the selected city rate after an assumed employer-half deduction excluding additional Medicare. Omits exemptions, deductions, city-specific bases, federal income tax, QBI, credits and FTE elections. It is not a complete return.
The City Income Tax, Concretely
| City (examples) | Resident | With 4.25% State |
|---|---|---|
| Detroit | 2.40% | ~6.65% combined |
| Grand Rapids | ~1.5% | ~5.75% combined |
| Lansing · Flint · Saginaw (most) | 1.00% | ~5.25% combined |
| Township / non-taxing city | 0% | 4.25% only |
City income tax generally follows both residence and work location — non-residents who work in a taxing city typically pay the lower non-resident rate on income earned there. For your LLC's pass-through profit, the question is where you live and where the work happens; for employees, you withhold based on where they work. It's the single most-missed piece of Michigan tax math.
The Flow-Through Entity Tax (SALT Workaround)
Michigan’s 4.25% FTE election is for eligible federal partnerships and S corporations with Michigan business activity. Treasury excludes publicly traded partnerships, entities subject to the financial-institutions tax, federally disregarded entities and LLCs filing as corporations; apply the actual federal classification, including eligible S treatment, rather than the LLC label alone. Sole proprietors and C corporations are not eligible. Review the election, taxable base, member reporting and refundable-credit rules in current instructions. For 2026, the federal individual SALT deduction cap starts at $40,400 ($20,200 married filing separately), with the statutory income-based phase-down and $10,000/$5,000 floors. It is not an unconditional $10,000 cap. An FTE election’s federal benefit depends on the owner’s actual deductions, income and entity eligibility; it is not automatic savings.
The S-Corp Question: Wages, Costs and Eligibility
S-election savings require eligible ownership, reasonable wages, payroll costs and actual owner circumstances. Distributions remain subject to applicable Michigan and city income taxes; no universal profit threshold establishes savings. Michigan’s 4.25% FTE election is for eligible federal partnerships and S corporations with Michigan business activity. Treasury excludes publicly traded partnerships, entities subject to the financial-institutions tax, federally disregarded entities and LLCs filing as corporations; apply the actual federal classification, including eligible S treatment, rather than the LLC label alone. Sole proprietors and C corporations are not eligible. Review the election, taxable base, member reporting and refundable-credit rules in current instructions.
Your Michigan Tax Calendar
| Date | What's Due |
|---|---|
| Jan 15 / Apr 15 / Jun 15 / Sep 15 | Quarterly estimated taxes — federal and Michigan (state + city), on pass-through profit |
| Feb 15 | Annual statement to LARA ($25) — Michigan's fixed compliance date |
| Mar 15 | Form 1065 (multi-member LLCs) + K-1s |
| Apr 15 | Form 1040 + Michigan MI-1040 (and any city income tax return) |
| Monthly/Quarterly | Sales & use tax returns via Michigan Treasury Online per your schedule |
Check the actual city’s income-tax base, residency/work sourcing and withholding requirements. Estimate owner and entity taxes from actual classification and deductions rather than a universal profit percentage.
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FTE Eligibility and 2026 SALT Limits
Michigan’s 4.25% FTE election is for eligible federal partnerships and S corporations with Michigan business activity. Treasury excludes publicly traded partnerships, entities subject to the financial-institutions tax, federally disregarded entities and LLCs filing as corporations; apply the actual federal classification, including eligible S treatment, rather than the LLC label alone. Sole proprietors and C corporations are not eligible. Review the election, taxable base, member reporting and refundable-credit rules in current instructions. For 2026, the federal individual SALT deduction cap starts at $40,400 ($20,200 married filing separately), with the statutory income-based phase-down and $10,000/$5,000 floors. It is not an unconditional $10,000 cap. An FTE election’s federal benefit depends on the owner’s actual deductions, income and entity eligibility; it is not automatic savings.
Treasury FTE classification requirements.
Michigan LLC — FAQ
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