Withholding Tax FAQs

Withholding Tax FAQ Index

Withholding Tax - Payroll

Every employer in Michigan who is required to withhold federal income tax under the Internal Revenue Code, must also be registered for and withhold Michigan income tax.

Withholding Tax - Pension

Michigan law requires the administrators of pension and retirement benefits (includes most payments that are reported on a 1099-R for federal tax purposes, such as: defined benefit pensions, IRA distributions, and most payments from defined contribution plans) to withhold income tax on payments that will be subject to tax.

Withholding Tax - General Information

  • Who is required to remit payroll withholding tax?

    Every Michigan employer who is required to withhold federal income tax under the Internal Revenue Code must be registered for and withhold Michigan income tax.

  • What is Michigan’s 2016 payroll withholding tax rate?

    The tax rate for 2016 is 4.25%.

  • What is Michigan’s 2016 personal exemption amount?

    The personal exemption rate for 2016 is $4,000.

  • Where can I get more information about Michigan income tax?

    Form 446, Income Tax Withholding Guide.

  • I have Michigan employees but my company is located in another state. Am I still required to withhold Michigan tax from the Michigan employees?

    Yes. The out-of-state company has created nexus (a physical presence for the company within Michigan).  The employer would be required to register with the Michigan Department of Treasury to withhold Michigan income tax.

  • My company is located out-of-state and has no nexus in Michigan. We have employees who are Michigan residents working in an out-of-state location. Which state's withholding tax would apply?

    Michigan has a reciprocal agreement with Wisconsin, Indiana, Kentucky, Illinois, Ohio and Minnesota.  Employers in these states should not withhold their state's income tax from Michigan residents who work in their states. Employers have the option to voluntarily register with the Michigan Department of Treasury to withhold Michigan income tax or the employee must make estimated income tax payments directly to Michigan.

    Employers in all other states should withhold their state's withholding tax.

  • Are nonprofit organizations required to withhold tax from their employees?

    Yes. Nonprofit organizations, such as charitable, religious and governmental organizations, are required to withhold Michigan Income Tax.

  • Where do businesses send copies of their W-2s and 1099 forms?

    Businesses are not required to submit copies of 1099 forms to the State of Michigan unless Michigan income tax was withheld. The only exception is 1099-MISC forms for services performed in Michigan; these must always be filed with Michigan.

    W-2s and 1099s cannot be submitted electronically through Michigan Treasury Online (MTO) with the annual return at this time. The anticipated release date for this functionality on MTO is January 2017. In the interim, wage reports must be mailed to:

    Michigan Department of Treasury
    Lansing, MI 48930

    Taxpayers who are mailing their annual returns may submit wage reports with their sales, use and withholding annual return:

    For 2014 and prior tax years, file Form 165, Annual Return for Sales, Use and Withholding Taxes.
    For 2015 and beyond tax years, file Form 5081, Sales, Use and Withholding Taxes Annual Return.

  • NOTE: If you have 250 or more Michigan employees, you must report via Magnetic Media using the mailing address above.

  • What cities impose an income tax?

    Albion, Battle Creek, Big Rapids, Detroit, Flint, Grand Rapids, Grayling, Hamtramck, Highland Park, Hudson, Ionia, Jackson, Lansing, Lapeer, Muskegon, Muskegon Heights, Pontiac, Port Huron, Portland, Saginaw, Springfield and Walker.

Find links to the cities and their respective Web site forms, addresses, and filing formats.

FAQs for Pension Withholding for Pension Administrators

  • For information on Withholding for Pension Recipients.

  • What is pension withholding tax and who has to remit it?

    Effective January 1, 2012, Michigan’s tax treatment of pension and retirement benefits changed and these benefits are subject to income tax for many recipients. Michigan law requires the administrators of pension and retirement benefits to withhold income tax on payments that will be subject to tax.

  • Which pension benefits are taxable?

    Under Michigan law, qualifying pension and retirement benefits include most payments that are reported on a 1099-R for federal purposes, including:

    • Defined benefit pensions
    • IRA distributions
    • Most payments from defined contribution plans.

Payments received before the recipient could retire under the provisions of the plan or benefits from 401(k), 457, or 403(b) plans attributable to employee contributions alone are taxable under Michigan law.

  • Which pension benefits are exempt?

    Payments not reported in Federal Adjusted Gross Income (AGI) are not taxable in Michigan and not subject to withholding.

    • Distributions from a Roth IRA or a Roth 401(k) plan, for example, are generally not subject to pension withholding because those distributions are generally not taxable.

    • Rollovers not included in the AGI.

Social Security, U.S. Military or Railroad Retirement benefits are not taxable.

  • What is Michigan’s 2016 pension withholding tax rate?

    The tax rate for 2016 is 4.25%.

  • What are the pension withholding requirements?

    For recipients born before 1946 (Tier 1)?

    • All benefits from public sources are exempt.

    • Benefits from private sources may be deducted accordingly:

      • Up to $49,027 for a single person or a married filer filing separately.

      • Up to $98,054 for a married person filing a joint return.

      • Any private pension payment in excess of the limits above is taxable.

For recipients born between 1946 through 1952 (Tier 2)?

  • The first $20,000 for single filers or $40,000 for joint filers of all private and public pension and retirement benefits may be deducted from Michigan taxable income. Any benefit in excess of the limits above is taxable.

  • The Michigan Standard Deduction

    • Beginning in 2014, taxpayers born during the period January 1, 1946 through January 1, 1948 are eligible for the Michigan Standard Deduction in lieu of a deduction for pension and retirement benefits.

    • Has the same dollar amount thresholds as the deduction for pension and retirement benefits but may be applied against all income.

    • The pension withholding tables allow taxpayers to incorporate the benefit of the Standard Deduction and generate the appropriate income tax withholding.

For recipients born after 1952 (Tier 3)?

  • All private and public pension and annuity benefits are fully taxable and may not be deducted from Michigan taxable income.
     
  • What are the registration requirements for a pension administrator?

Pension administrators should register as soon as you know you have a Michigan resident(s) to which you pay pension and/or annuity payments. Pension administrators will register for Michigan Withholding Tax.

For more information, See Table 1: Filing Frequencies & Due Dates.
For more information, See Table 2: Tax Return Form Number by Tax Year.

  • Do pension administrators have to deposit pension withholding separate from employee withholding?

    Pension withholding and payroll withholding are remitted to the State of Michigan as Withholding Tax; therefore separate registration and deposits are not typically required. However, the law requires a person disbursing taxable pension benefits to pay pension withholding taxes directly. If a pension fund based in another state uses a third party payroll service provider located in Michigan to pay pension benefits on its behalf to Michigan residents, the third party provider is required to register for and pay Michigan pension withholding because the third party provider disburses pension benefits and is a person over whom Michigan has jurisdiction.

  • MI W-4P

    • Are there any acceptable substitute forms for the MI W-4P?

      Pension administrators may rely on or use substitute MI W-4P forms. In general, the substitute form needs to convey the same basic information that is on the Department's MI W-4P form. The Department does not require a review and/or approval for substitute forms at this time. For instance, a fillable form on a pension administrator's website for pension or IRA recipients to complete on line is an acceptable alternative to paper forms.

      A Federal W-4P may not be substituted for the MI W-4P.

    • Can a pension recipient change their number of personal exemptions at any time?

      Yes, by submitting an updated MI W-4P to their Pension Administrator.

    • We have clients whose marital status reflects one of the following: A widow(er) or divorced. When they complete the MI W-4P, which box should be checked?

      Single.

    • Where can I find the withholding tables or the withholding formula for recipients that were born during the period 1946 through 1952 (Tier 2) and/or for whom an MI W-4P has been received?

      2016 Withholding Table: Form 446-T
      2016 Withholding Formula: Form 446-I. Also see FAQ, What is the 4.25% formula for those born between 1946 and 1952 (Tier 2)? below.

      Prior year tables and formulas are searchable and archived on our Web site.

    • What is the difference between the single and joint withholding tables?

      The pension tax withholding tables included in the Pension Withholding Guide incorporate the deductions of $20,000 for single or married filing separate, and $40,000 for married filing a joint return, assuming benefits are paid monthly. Recipients who indicate on the MI W-4P they are married (withhold as single) should have withholding computed as if they are single.

    • What is the 4.25% formula for those born between 1946 and 1952 (Tier 2)?

      Withholding = [Federal Income Taxable Pension/Retirement Payment – Monthly Pension Deduction – (Personal Allowance per Exemption x Number of Exemptions)] x 4.25%

      Monthly Pension Deduction Amounts:

      • Single pension deduction = $1,666.67
      • Married pension deduction = $3,333.33

Personal Exemption per Allowance = $333.33

Example:

  • Assume the following facts:
    Pension Payment = $2,100
    Recipient gets a Single Pension Deduction ($1,666.67, from above)
    1 Exemption
  • Calculation:
    Monthly Withholding = [$2,100 - $1,666.67 – ($333.33 x 1)] x 4.25%
    [$2,100 - $1,666.67 – ($333.33)] x 4.25%
    [$2,100 - $1,666.67 – $333.33] x 4.25%
    [$100.00] x 4.25%
    = $4.25
  • What is the withholding rate for those born after 1952 (Tier 3)?

For recipients born after 1952 (Tier 3), all pension and retirement benefits are taxable. There are no deductions or personal allowances.

Use the monthly withholding schedule from the Withholding Tax Table (Form 446-T) to calculate the appropriate withholding based on the number of personal exemptions claimed on the MI W-4P. The 2016 withholding rate is 4.25%

  • What should be done if no MI W-4P is submitted?

    Do not withhold on benefits paid to recipients born before 1946 (Tier 1) unless the benefits exceed private pension limits ($49,027 single and $98,054 joint).

    Withhold on all taxable pension distributions at 4.25% if the recipient was born in 1946 or after. 

  • Withholding Information for Pensions, Annuities and other Retirement Payments

    • Do the new mandatory withholding requirements apply to trusts receiving IRA distributions as the beneficiary of an IRA?

An IRA custodian or administrator is subject to Michigan’s pension withholding tax on any distributions that will be subject to Michigan income tax at the end of the year in the hands of the beneficiary.  Distributions paid to a trust as an IRA beneficiary will be taxable at the end of the year and are subject to pension withholding.

Is there a minimum one time distribution amount from a taxable pension distribution that does not require Michigan tax withholding?

One time distributions from employer retirement plans or IRAs are only subject to Michigan pension withholding if the distribution exceeds the exemption allowance for the number of personal exemptions claimed on line 5 of the MI W-4P.

NOTE: This applies to any one time distribution not just those that fall under the minimum distribution rules.

  • Are Michigan withholding requirements on distributions from an Employee Stock Ownership Plan (ESOP) voluntary or mandatory?

Effective 2012, Michigan's pension withholding requirements are mandatory on retirement or annuity payments that will be taxable to the recipient and reported by the payor on a 1099-R form at the end of the year. If distributions from an ESOP retirement plan meet these conditions, Michigan's pension withholding is mandatory except to the extent provided for on a MI W-4P submitted by a recipient.

  • Is a distribution from a Roth IRA taxable and subject to the 4.25% withholding?

    MCL 206.703 requires pension withholding on any IRA distributions that will be subject to Michigan tax at the end of the year on the beneficiary’s Michigan income tax return.

    In general, distributions from Roth IRAs are exempt from both Michigan and federal income taxes, and no pension withholding would be required. However, if part of the distribution is taxable, then Michigan pension withholding would be required on the taxable portion of the distribution. A portion of the distribution from a Roth IRA may be taxable when a recipient receives a nonqualified distribution.  Nonqualified distributions from Roth IRAs are determined by referencing the Internal Revenue Code.

  • If a pension administrator withholds and remits payment to the Department on a recipient’s distribution that was not subject to income tax, how can the retiree recover the withheld tax?

    In most cases, the pension administrator can directly refund the withheld amount to the retiree. Pension administrators can use the same procedures that are available to employers under the Michigan Administrative Code R 206.22(1):

    “[i]f an employer over withholds income tax from an employee’s wages, or if he withholds Michigan tax where he should not have withheld Michigan tax, he may repay the amount withheld in error to the employee at any time within the same calendar year.…The employer may adjust his records internally and deduct the amount refunded from the tax owing on his next tax return….”

    EXAMPLE:

    A pension administrator deducted $150 from John Doe’s January 2016 pension distribution and paid the withholding to the Department on its January return due February 20, 2016. However, George was born in 1939 and owes no tax on his pension.

    The pension administrator will:

    • Pay John Doe the $150 that was mistakenly withheld.

    • Amend the January 2016 return (Form 5092) to report the correct obligation ($150 less than originally reported).

    • Reduce its February 2016 withholding payment by $150 by claiming a prior payment/credit of $150 in the summary section of the February return (Form 5080).

    • Reconcile its total withholding for the year against its monthly returns and against the withholding reported on 1099Rs by filing the Sales Use and Withholding Annual Return (Form 5081) by February 28, 2016.

      If the pension administrator is unable to repay the retiree by way of internal adjustments to its monthly withholding returns, the retiree will not be able to seek a refund from the Department until the retiree files an income tax return following the close of the tax year.

  • Is a 501(c)(3), which is not required to file a Form 990, required to withhold on a Charitable Gift Annuity (CGA) for a Michigan beneficiary?

    A 501(c)(3) organization making annuity payments to beneficiaries through a charitable gift annuity plan is subject to Michigan pension withholding on the taxable portion of the distributions. In general, the taxable portion of distributions subject to Michigan withholding will be the taxable amount that is reported to the beneficiary at the end of the year in box 2a of the federal 1099-R form.

  • Where can I get more information about Michigan Income Tax Withholding?

    Form 446, Income Tax Withholding Guide.

W-2s,1099-MISC and Magnetic Media

  • The Income Tax Act of 1967 requires certain 1099 payors to file Form 1099-MISC with the Michigan Department of Treasury…

    The filing requirements are outlined in MCL 206.707. Prior to this amendment, the Department did not require payors to file a 1099-MISC unless Michigan tax was withheld from the payments reported on the 1099. This is effective for tax years beginning after December 31, 2002.

  • Who needs to file state copies of 1099-MISC?

    Payors who are required to file form 1099-MISC with the Internal Revenue Service (IRS) must also file with the State of Michigan and with the payee's city of residence if that city imposes an income tax.

  • Which 1099's must be filed with the State of Michigan?

    1099s and 1099-MISC forms for services performed in the State of Michigan, regardless of the state of residence of the payee, must be filed with the State of Michigan.

  • How do I file the State's copy of W-2s and 1099s?

    1099s cannot be submitted electronically through Michigan Treasury Online (MTO) with the annual return at this time. The anticipated release date for this functionality on MTO is January 2017. In the interim, wage reports must be mailed to:

    Michigan Department of Treasury
    Lansing, MI 48930

    Taxpayers who are mailing their annual returns may submit wage reports with their sales, use and withholding annual return:

    For 2014 and prior tax years, file Form 165, Annual Return for Sales, Use and Withholding Taxes.
    For 2015 and beyond tax years, file Form 5081, Sales, Use and Withholding Taxes Annual Return.

  • NOTE: If you have 250 or more Michigan employees, you must report via Magnetic Media using the mailing address above.

  • I am required to submit form 1099-MISC to the IRS for Agricultural Services. How do I file with Michigan?

    Send the 1099-MISC forms (no cover letter required) to:

    Michigan Department of Treasury
    Lansing, MI 48930

  • I am not registered to pay taxes to the State of Michigan, how do I file?

    Send your 1099-MISC (no cover letter required) to:

    Michigan Department of Treasury
    Lansing, MI 48930

  • I have already sent in my Annual Return for Sales, Use and Withholding Taxes. How do I submit 1099-MISCs?

    Send the 1099-MISC forms (no cover letter required) to:

    Michigan Department of Treasury
    Lansing, MI 48930

  • What is the due date for wage statements?

    Submissions must be postmarked by February 28th of the year following the tax year on the forms.
    If the due date falls on a weekend or State holiday, the due date is the next business day.

  • What is magnetic media filing and who is required to remit via Magnetic Media?

Magnetic Media is neither a paper nor an electronic system, but is an alternative way of reporting required wage statements. The Michigan Department of Treasury requires employers with 250 or more Michigan employees to file via Magnetic Media on 3480 and 3490 cartridge or CD-R. Additional information regarding Magnetic Media Reporting can be found on Form 447, Transmittal for Magnetic Media Reporting of W-2s, W-2Gs and 1099s to the State of Michigan.

Smaller employers are encouraged to use magnetic media, but may file paper using the state copy of the federal W-2.

  • Which wage statements may I by magnetic media?

W-2s, W-2Gs, 1099s and 1099-MISC may be filed by Magnetic Media.

  • Where do I send magnetic media to the State of Michigan?

    Send the magnetic media with Form 447, Transmittal for Magnetic Media Reporting of W-2s, W-2Gs and 1099s to the State of Michigan to:

    Michigan Department of Treasury
    Lansing, MI 48930

    Courier Deliveries:
    Michigan Department of Treasury
    Operations Center
    7285 Parsons Dr.
    Dimondale, MI 48821

    NOTE: You must remit your Annual Return for Sales, Use and Withholding Taxes separately – electronically via MTO or via mail to the address listed on the return.

  • We are doing away with our tape drives; what can I use to send my Magnetic Media?

    The acceptable formats for Magnetic Media are 3480/3490 cartridge or CD-R.

  • Where can I find more information regarding W-2s and 1099s?

    Contact Customer Contact at 517-636-6925.

  • Where can I find more information regarding Magnetic Media Reporting?

    Form 447, Transmittal for Magnetic Media Reporting of W-2s, W-2Gs and 1099s to the State of Michigan.

    Contact Customer Contact at 517-636-6925.

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Filing Requirements and Filing Deadlines

Table 1: FILING FREQUENCIES AND DUE DATES

Filing Frequency Due Date for Return and Payment
Monthly  On or before the 20th day of the following month.
Quarterly  On or before the 20th day of the month following the quarter end.
Annual  Due February 28th of the year following the tax year reported.
Withholding Accelerated Electronic Funds Transfer (EFT)

Taxpayers who have an annual Withholding liability of ≥ $480,000 in the preceding calendar year.

According to PA 82 and 83 of 1991, an Accelerated Withholding Tax filer is required to remit withholding taxes the same day as federal payments regardless of the amount due.

Accelerated EFT Filing Requirements

Questions and Answers About Paying Your Withholding Tax on an Accelerated Schedule

Table 2: TAX RETURN FORM NUMBER BY TAX YEAR

2014 & Prior
Tax Years
2015 & Beyond
Tax Years
Form Title Additional Information
160 5080 Sales, Use and Withholding Taxes Monthly/Quarterly Return  
N/A

 

5092 Sales, Use and Withholding Taxes Amended Monthly/Quarterly Return  
165 5081 Sales, Use and Withholding Taxes Annual Return  
N/A 5082 Sales, Use and Withholding Amended Annual Return  
429 5083 Fuel Supplier and Wholesaler Prepaid Sales Tax Schedule This is now a schedule to be e-filed in connection with your 5080 or 5092 through MTO.
430 5084 Fuel Advance Credit Repayment  
2189 5085 Fuel Retailer Supplemental Schedule This is now a schedule to be e-filed in connection with your 5080 or 5092 through MTO.
92 5086 Vehicle Dealer Supplemental Schedule This is now a schedule to be e-filed in connection with your 5080 or 5092 through MTO.
48 5087 Purchasers Use Tax Return Keep a copy for your records.
388 5088 Seller’s Use Tax Return Keep a copy for your records.
2271 5089 Concessionaire’s Sales Tax Return and Payment  
4601 5091 Sales, Use and Withholding Taxes 4% and 6% Annual Return This form must be submitted electronically through MTO.
N/A 5093 Sales, Use and Withholding Taxes Amended 4% and 6% Annual Return This form must be submitted electronically through MTO.
N/A 5094 Sales, Use and Withholding Taxes Payment Voucher This form is used to remit a payment separate from a return. This form does not replace a return.
3862 5095 Sales, Use and Withholding Monthly/Quarterly and Amended Monthly/Quarterly Worksheet This form is not sent to the Department of Treasury; it is designed as a tool to assist in preparing returns.
151 151 Authorized Representative Declaration (Power of Attorney)  This form can be electronically submitted through MTO.
163 163 Notice of Change or Discontinuance This form can be electronically submitted through MTO.
  • Do I have to file a return? What if I do not owe any tax?

    If you are registered to pay a tax, you must file a return within your established filing frequency, even if no tax is due.

  • What is the definition of a “tax year”?

    A tax year for sales & use tax is defined as a calendar year: January 1st – December 31st.

  • How often do I need to file a tax return for sales, use and withholding taxes?

    Initially, your filing frequency is determined by the estimated monthly payment for each tax liability that you requested for on your registration application:

    • If your monthly tax due is up to $65, you would file annually.

    • If your monthly tax due is up to $300, you would file quarterly.

    • If your monthly tax due is over $300, you would file monthly.

Subsequently, your filing frequency is determined by your previous year’s total tax liability:

  • If your annual tax due is less than $750, you would file annually.

  • If your annual tax due for the year is between $750 and $3,600, you would file quarterly.

  • If your annual tax due for the year is over $3,600, you would file monthly.

NOTE:

  • It is your responsibility to notify Treasury if your total tax liability exceeds your current filing frequency threshold so it can be adjusted accordingly.
  • Treasury determines your filing frequency. You can request filing frequency changes on Michigan Treasury Online and if changes are subsequently made, the Department will notify you in writing.You cannot unilaterally change your filing frequency.

For more information, See Table 1: Filing Frequencies & Due Dates.
For more information, See Table 2: Tax Return Form Number by Tax Year.

  • I did not file my monthly/quarterly returns. Can I just file the annual return?

    No, the purpose of the annual return is to reconcile, balance, and close the tax year – it does not replace monthly/quarterly returns.

    For more information, See Table 1: Filing Frequencies & Due Dates.
    For more information, See Table 2: Tax Return Form Number by Tax Year.

  • When filing my monthly/quarterly return, it is asking me for “gross sales”. IS this correct? Does this mean only taxable sales or all sales?

    Gross sales is required to be reported on monthly/quarterly returns for the 2015 tax year and beyond. Gross sales is defined as all sales. To obtain your taxable sales figure, subtract any allowable deductions from gross sales. Allowable deductions and calculation of tax due from taxable sales are not delineated on the monthly/quarterly return.

    Please refer to Form 5095, Sales, Use and Withholding Monthly/Quarterly and Amended Monthly/Quarterly Worksheet, for assistance in completing the monthly/quarterly return.

  • I need to amend my sales, use and withholding tax return. What is the process?

    Monthly/ Quarterly Return

    • For 2014 and prior tax years, complete a new Form 160, Combined Return for Michigan Taxes, with the correct figures. Handwrite the word “AMENDED” clearly on the form. This form can only be mailed.

    • For 2015 and beyond tax years, complete Form 5092, SUW Taxes Monthly/Quarterly Amended Return with the correct figures. This form can be electronically submitted through MTO or mailed.

Annual Return

  • For 2014 and prior tax years, complete a new Form 165, Annual Return for Sales, Use and Withholding Taxes, with the correct figures. Check the “amended” box at the top of the first page and enter the date of amendment. Fill out the explanation section on page two indicating the reason for the amendment. This form can only be mailed.

  • For 2015 and beyond tax years, complete Form 5082, SUW Taxes Amended Annual Return, with the correct figures. This form can be electronically submitted through MTO or mailed.