What is the tax rate?
Please see the Single Business Tax Rate Tables for more information.
How is the SBT calculated?
The SBT liability starts with calculation of the total tax base. For most taxpayers the primary components of the tax base are compensation, business income (federal taxable income), and several additions or subtractions.
- Compensation includes salaries and wages, plus the employer's costs for nearly all fringe benefits. Beginning in 2004, there is a partial exclusion of certain medical benefit costs. Compensation does not include FICA, unemployment insurance or workers' compensation.
- Additions include depreciation, taxes based on income, net operating loss carryover or carryback, dividend and interest payments, and certain royalty expenses. These are added only to the extent they were deducted on the federal return.
- Subtractions include dividend, interest and certain royalty income reported on the federal return.
- There are numerous other exemptions, reductions and credits that may be allowed. These modify the value-added nature of the SBT and reduce the tax liabilities for taxpayers that qualify to use them.
Once the total tax base is determined, multiply it by the tax rate, then subtract any eligible credits. (See an example of Single Business Tax calculation.)
What is the compensation exclusion for medical benefits?
Beginning in 2004, the definition of compensation is modified by partially excluding an employer's costs of providing medical benefits to employees who are Michigan residents. This includes medical insurance premiums, if an employer purchases medical insurance for its employees. It includes both direct and administrative costs for an employer that absorbs such costs internally (sometimes called "self-insured") rather than buying insurance. Only a percentage of employer medical costs are excludable, as follows, for tax years beginning in:
- 2004: 5%
- 2005: 20%
- 2006: 40%
- 2007 or later: 50%
The excluded amount is calculated in the taxpayer's work papers, not on the return. Include the net amount, after exclusion, on the "Employee insurance" line of the form. Costs of any other type of insurance provided to employees, such as disability income or life insurance, must be included in full.