New Employer Organ Donation Leave Credit

Public Act 39 of 2026 amended the Michigan Income Tax Act (MITA), creating a new tax credit that may be claimed against Michigan Individual Income Tax (IIT) (under MCL 206.279) or Michigan Corporate Income Tax (CIT) (under MCL 206.679) for paid organ donation leave paid to employees. The credit may also be claimed by insurance corporations and financial institutions, but this notice will largely focus on IIT and CIT taxpayers.

This notice describes the new credit, defines key terms related to the credit, and describes what documentation a flow-through entity should provide its members so that they may claim the credit on their returns.

Credit Overview

For tax years beginning and after January 1, 2026, a qualified taxpayer that provides paid organ donation leave to an eligible employee may claim a non-refundable credit against either the claimant’s IIT or CIT tax liability in an amount equal to 100% of the wages paid to an eligible employee during their paid organ donation leave.

This credit can be claimed directly by employers who are either a corporation or an individual who operates a sole proprietorship. If the employer is a flow-through entity, the entity will distribute the credit to its individual members for ultimate reporting on their IIT return. If the credit is claimed by a taxpayer, that taxpayer must add the wages deducted at arriving at either adjusted gross income (AGI) or federal taxable income (FTI) back to their Michigan income tax base.

Employer Eligibility

To be eligible to claim the credit, an employer must offer their employees paid time off for the purpose of donating an organ. The paid organ donation leave must be paid at the same rate as the employee’s normal wage. This paid leave policy must be in writing and must be exclusively for the purpose of providing leave to donate an organ, including periods of time before, during, and after the donation.

Eligible Employee and Leave

The employer is eligible for the credit only if “all other leave benefits provided to [the] employee have been exhausted” prior to the employee’s use of the paid organ donation leave. This includes using benefits such as paid sick leave and paid annual leave. MCL 206.279(4)(b). Only 12 weeks of eligible paid organ donation leave per employee may be used to calculate the credit.

To be considered an eligible employee, the employee must themselves donate the organ. Leave paid to an employee caring for a dependent or spouse who has donated an organ does not qualify as wages paid for the calculation of the credit.

Organ donation for the purpose of this credit means donating whole or part of a human organ. For purposes of eligible donations, Treasury will apply the same definition of “human organ” as used within MCL 206.280. That definition incorporates the Public Health Code to include the following human organs: a kidney, part of a liver, a lobe of a lung, a partial pancreas, part of an intestine, bone marrow, bone, or skin. Human organ does not include whole blood, blood plasma, blood products, blood derivatives, other self-replicating body fluids, or human hair. Taxpayers with questions about the scope of eligible “human organs” should consult Section 10204 of the Public Health Code, MCL 333.10204, and any associated regulations.

Calculation of the Credit and Addition

Once an employee has used all other provided leave benefits, any amount the employer pays in wages under a plan specifically established for paid organ donation leave may be claimed as a credit against either IIT or CIT liability. The credit must be initially claimed in the year the eligible employee completes their organ donation leave, but the credit may include eligible wages paid in a prior year.

The credit is non-refundable, but any balance not used in the year the credit is claimed may be carried forward to the succeeding 3 tax years or until the credit is fully used.

Example:

Assume that an employer has a fiscal year running from July 1st – June 30th. If an employee went on paid organ donation leave in June of 2026 and returned from leave at the end of August of 2026, the credit would be claimable by the employer on the return filed for the July 1, 2026 – June 30, 2027, tax year. However, the calculation of the credit could include eligible wages paid during the July 1, 2025 – June 31, 2026, tax year.

For the credit, wages are defined in the same manner as they are under the Federal Unemployment Tax Act. Thus, there must be an employee/employer relationship that is maintained during the paid organ donation leave period, and the wages must be paid out to the employee for the paid organ donation leave. Wages do not include employer contributions to a retirement account, employer paid health insurance premiums, taxes paid on behalf of the employee that do not reduce the employee’s overall compensation, and non-cash benefits that are excludable from the employee’s AGI.

The credit also requires the claimant to report an addition on their Michigan return of any wages that were used to calculate the credit that were also claimed as a deduction for the calculation of AGI of FTI.

Example:

Company ABC, Inc. paid $30,000 in compensation to its employee Tamara during her use of paid organ donation leave. Of the $30,000 in compensation, $1,000 was an employer contribution paid to Tamara’s 401k, and $29,000 was paid to Tamara. Thus, ABC, Inc. may treat $29,000 of the compensation as wages for the calculation of its Employer Organ Donation Leave Credit. ABC, Inc. also deducted all $30,000 of the compensation from the calculation of its FTI. ABC, Inc. would need to add $29,000 to its Michigan tax base for the wages that were deducted from FTI and included in the calculation of the credit.

Reporting requirement for Flow-through Entities

For flow-through entities that generate the credit, the entity will need to provide its members claiming the credit the member’s proportional share of the total credit, and the member’s proportional share of wages deducted in arriving at AGI that the claimant member must add to Michigan taxable income.