Credit for Income Tax Imposed by Government Units outside Michigan
MI-1040, Line 18: Credit for Income Tax Imposed by Government Units outside Michigan.
Line 18a: Enter the total income tax paid to other government units. If you paid tax to more than one unit, attach a schedule showing the tax paid to each government unit.
Include the amount of income tax paid to:
- A nonreciprocal state (Any state other than Illinois, Indiana, Kentucky, Minnesota, Ohio, or Wisconsin)
- A local government unit outside Michigan, including tax paid to local units within reciprocal states (e.g., City of Toledo)
- The District of Columbia
- A Canadian province.
You may not claim a credit for taxes paid on income not included in Adjusted Gross Income (AGI) or subtracted on Michigan Schedule 1 (e.g., rental or business income from another state, part-year resident wages, etc.).
If you claim credit for Canadian provincial tax, you must file a Resident Credit for Tax Imposed by a Canadian Province (Michigan Form 777). Attach copies of your Canadian Federal Individual Tax Return (Form T-1), Canadian Form T-4, Foreign Tax Credit (U.S. Form 1116), and U.S. Form 1040. Your credit is limited to the portion of your Canadian provincial tax not used as a credit on your U.S. Form 1040.
Attach a copy of the return filed with the other government unit(s) to your MI-1040.
Line 18b: Credit amount. If more than one government unit is involved, compute the credit amount for each government unit separately. Then add the individual credit amounts and enter the total on line 18b.
Compute your allowable credit as follows:
Divide your income subject to tax in both states by your income subject to Michigan tax (MI-1040, line 14); then multiply the amount of tax on MI-1040, line 17, by the result.
Your credit cannot exceed the smaller of:
- the amount of tax imposed by another government; or
- the amount of Michigan tax on salaries, wages, and other personal compensation earned in another state.
EXAMPLE: Computing Michigan resident's credit for tax imposed by another state.
Michigan wages $18,000 Wages earned outside Michigan $12,000 Income Other than Wages (such as U.S. savings bonds interest) + $1,000 Adjusted Gross Income (MI-1040, line 10) $31,000 Schedule 1 subtractions - $1,000 Total income subject to tax (MI-1040, line 14) $30,000 Percent of non-Michigan income to total ($12,000/$30,000) 40% Taxpayer has 2 exemptions (2 x $4,000) - $8,000 Taxable Income (MI-1040, line 16) $22,000 Tax 4.25% (0.0425) (MI-1040, line 17) $935 Tax imposed by a government unit outside Michigan
(Enter this amount on MI-1040 line 18a)
$700 Credit limit is 40% of $935 (Enter on MI-1040 line 18b) $374
The eligible credit is $374, because the Michigan tax ($374) on the out of state income is less than the tax imposed by the other state ($700). Enter the eligible credit amount ($374) on your MI-1040, line 18b.
This estimator provides an unofficial estimate and has no legal bearing on any future tax liability. Interactive estimators are made available to you as self-help tools for your independent use.
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