Calculation of State Individual Income Tax Rate Adjustment for 2025 Tax Year; State’s Individual Income Tax Rate Remains at 4.25%

State Treasurer Rachael Eubanks, Senate Fiscal Agency Director Kathryn Summers and House Fiscal Agency Director Mary Ann Cleary today published their calculation about whether an individual income tax rate adjustment is required for the 2025 tax year.

Upon publication of the state of Michigan’s Annual Comprehensive Financial Report (ACFR) for Fiscal Year 2024 – which ran from Oct. 1, 2023, to Sept. 30, 2024 – the state treasurer and agency directors conducted a state law-required calculation to determine if a rate change was required. The result of that calculation found that the conditions for an individual income tax reduction were not present.

Treasury Administration of Calculation

“To determine the individual income tax rate, a very specific calculation within state law must be conducted annually following release of the Michigan’s ACFR,” State Treasurer Rachael Eubanks said. “This year’s calculation indicates that the state’s individual income tax rate will remain at 4.25%.”

For the tax year 2025, the determination is based on the state fiscal year ended Sept. 30, 2024.  Under state law, the individual income tax rate may be subject to a formulary reduction if the general fund grew faster than the rate of inflation for the immediately preceding state fiscal year and the inflation rate is positive. The general fund did grow faster than inflation for this period necessitating the application of a statutory formula to determine if a rate reduction is warranted. After applying the statutory formula, no rate reduction is required so the individual income tax rate for 2025 remains at 4.25%.

The ACFR for Fiscal Year 2024 can be found on the State Budget Office’s website. Additional details about the individual income tax rate calculation can be found in a taxpayer notice issued by the Michigan Department of Treasury.

In 2015, Michigan enacted a law requiring a temporary reduction of the state individual income tax rate if the general fund grew faster than the rate of inflation in any year starting for the 2023 tax year. Upon the publication of the annual ACFR each year, the state law requires the state treasurer and the directors of the House and Senate Fiscal Agencies to determine if the income tax rate will change.