MI Income Tax

Michigan Individual Income Tax Skill — Self-Employed / Sole Proprietor

Scope. This skill covers Michigan Form MI-1040 for full-year Michigan residents who are sole proprietors or single-member LLC owners. Michigan imposes a flat 4.25% income tax. This skill also flags city-level income taxes that may apply in 24 Michigan cities.

Quality tier. Q3 — AI-drafted, not independently verified. All rates and thresholds were researched on 2026-05-22 from official Michigan Department of Treasury publications. A qualified professional must review before filing.

Section 1: Metadata

Metadata table

Field	Value
Jurisdiction	Michigan (US-MI)
Tax type	Individual income tax
Primary form	Form MI-1040
Tax year	2026 (filed in 2027)
Authority	Michigan Department of Treasury
Statute	MCL 206.1 et seq. (Income Tax Act of 1967)
Version	0.1
Last updated	2026-05-22
Validation	AI-drafted — Q3

Sources consulted

Sources consulted table

#	Source	URL
1	Michigan Treasury — 4.25% Rate Notice for 2026	https://www.michigan.gov/treasury/reference/taxpayer-notices/2026/04/15/425-income-tax-rate-for-individuals-and-fiduciaries-in-2026-tax-year
2	MI-1040 Book (TY 2025 instructions)	https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/IIT/TY2025/MI-1040-Book.pdf
3	MCL 206.51 — Tax rate	https://legislature.mi.gov/Laws/MCL?objectName=mcl-206-51
4	Michigan city income tax list	https://www.michigan.gov/taxes/iit/city

Section 2: Quick reference — rates and thresholds

Tax rate — 2026 tax year

Michigan flat income tax rate table (MCL 206.51)

Item	Value	Source
Michigan flat income tax rate	4.25%	MCL 206.51

• Flat rate applicability — Michigan uses a flat rate — the same 4.25% applies to all taxable income regardless of filing status or income level. (MCL 206.51)

Exemptions — 2026

Exemptions table (MCL 206.30)

Item	Amount	Source
Personal exemption	$5,800 per person	MCL 206.30
Stillbirth exemption	$5,800	MCL 206.30
Special exemption (disabled/deaf/blind)	$3,400	MCL 206.30
Disabled veteran exemption	$500	MCL 206.30

• No state standard deduction — Michigan does NOT have a state-level standard deduction for most filers. Taxpayers under age 67 deduct only personal exemptions from AGI. (MCL 206.30)

Retirement / senior deductions (age 67+)

Senior deduction table

Filing status	Deduction
Single (age 67+)	$20,000 against all income
MFJ (both 67+)	$40,000 against all income

Key thresholds

Key thresholds table

Item	Value
Filing deadline	April 15, 2027 (for TY 2026)
Extension	Automatic 6-month with federal extension
Estimated tax threshold	$500 expected liability after credits and withholding
Estimated payment due dates	April 15, June 15, September 15, January 15

City income taxes (overview)

24 Michigan cities impose a separate city income tax. The most notable:

City income tax rates table

City	Resident rate	Non-resident / worker rate
Detroit	2.4%	1.2%
Grand Rapids	1.5%	0.75%
All other cities	1.0%	0.5%

• City tax filing separate from MI-1040 — City income tax is filed on a separate return directly with the city. It is NOT computed on Form MI-1040.

Section 3: How this skill works with the federal return

• Starting point — Michigan taxable income begins with federal adjusted gross income (AGI) from federal Form 1040, Line 11.
• Step 1 - Additions — Additions — Add back items Michigan does not exclude (e.g., deductions for income taxed by a Michigan city, interest on non-Michigan state/municipal bonds).
• Step 2 - Subtractions — Subtractions — Subtract items Michigan excludes (e.g., U.S. government bond interest, Social Security benefits, Michigan state/local income tax refunds included in federal AGI, retirement/pension income for qualifying seniors).
• Step 3 - Michigan AGI — Michigan AGI = Federal AGI + additions − subtractions.
• Step 4 - Personal exemptions — Personal exemptions — $5,800 per qualifying exemption (2026).
• Step 5 - Michigan taxable income — Michigan taxable income = Michigan AGI − exemptions.
• Step 6 - Tax — Tax = Michigan taxable income × 4.25%.
• Step 7 - Credits — Credits — Apply applicable credits.
• No standard/itemized deduction under 67 — Michigan does NOT have a state standard deduction or itemized deductions for taxpayers under age 67.

Section 4: Self-employed specific rules

• 1. Self-employment income flow-through — Self-employment income flows through federal Schedule C → federal AGI → Michigan AGI. No separate Michigan schedule for self-employment income.
• 2. Federal SE tax deduction — The 50% self-employment tax deduction is reflected in federal AGI. Michigan starts from federal AGI, so this carries through.
• 3. Estimated taxes — Self-employed taxpayers must make quarterly estimated payments (Form MI-1040ES) if expected liability exceeds $500. Penalty applies for underpayment.
• 4. Business equipment depreciation — Michigan generally conforms to federal depreciation, including IRC § 179. Michigan also conforms to bonus depreciation under IRC § 168(k).
• 5. Home office deduction — Flows through federal Schedule C; no separate Michigan adjustment.
• 6. Health insurance deduction — The self-employed health insurance deduction is included in federal AGI. No Michigan add-back required.
• 7. City income tax — If the taxpayer operates a business in a city with a city income tax (e.g., Detroit), a separate city income tax return may be required.

Section 5: Tier 1 rules — deterministic

Tier 1 rules table

Rule ID	Rule	Source
MI-T1-01	Start with federal AGI (Form 1040, Line 11)	MCL 206.30
MI-T1-02	Add back interest on out-of-state municipal bonds	MCL 206.30(1)(d)
MI-T1-03	Add back city income tax deduction claimed on federal Schedule A	MCL 206.30
MI-T1-04	Subtract U.S. government bond interest	MCL 206.30(1)(f)
MI-T1-05	Subtract Social Security, military pay, railroad retirement (fully exempt)	MCL 206.30(1)(f)
MI-T1-06	Personal exemption: $5,800 per person (2026)	MCL 206.30
MI-T1-07	Flat rate: taxable income × 4.25%	MCL 206.51
MI-T1-08	Michigan EITC: 30% of federal Earned Income Credit (refundable)	MCL 206.272
MI-T1-09	Homestead Property Tax Credit: available to homeowners/renters with household income ≤ certain thresholds (filed on MI-1040CR)	MCL 206.520
MI-T1-10	Credit for taxes paid to other states: non-refundable, limited to Michigan tax on income also taxed by other state	MCL 206.255

Section 6: Tier 2 rules — requires judgment

Tier 2 rules table

Rule ID	Rule	Guidance
MI-T2-01	Residency determination — Michigan uses a domicile test. A person domiciled in Michigan is a resident for the full year, even if temporarily absent.	If taxpayer has homes in multiple states, flag for professional review.
MI-T2-02	Reciprocal agreements — Michigan has reciprocity with IL, IN, KY, MN, OH, WI. Wages earned in those states by a MI resident are taxed only by MI.	Verify the employer withheld for MI (not the work state) and file exemption certificate.
MI-T2-03	City income tax nexus — If a self-employed person has customers or performs work in a city with city income tax, apportionment rules may apply.	Flag for professional review if the taxpayer works in Detroit, Grand Rapids, or other taxing cities.
MI-T2-04	Retirement/pension income subtraction — Complex rules for taxpayers born before 1946, between 1946–1952, and after 1952.	Apply the correct tier based on birth year.
MI-T2-05	Home heating credit — Income-based credit available to low-income households.	Requires separate computation on MI-1040CR-7.

Section 7: Supplier pattern library

Supplier pattern library table

Pattern	Treatment	Notes
W-2 wages from Michigan employer	Michigan withholding applies; include on MI-1040	Most common
W-2 wages from reciprocal state (IL, IN, KY, MN, OH, WI)	Should have MI withholding; if not, claim credit	File exemption with employer
Schedule C net profit (sole prop)	Flows through federal AGI → Michigan AGI	No separate MI schedule
Rental income (Schedule E)	Included in federal AGI → Michigan AGI	Michigan-source if property in MI
Interest on U.S. government bonds	Subtract from Michigan AGI	MCL 206.30
Interest on non-Michigan muni bonds	Add back to Michigan AGI	Taxable for MI purposes
Social Security benefits	Subtract from Michigan AGI (fully exempt)	MCL 206.30
Capital gains from asset sale	Included in federal AGI → Michigan AGI	No special MI rate
1099-NEC freelance income	Flows through Schedule C → federal AGI	Estimated payments likely needed

Section 8: Form mapping

Form mapping table

Michigan form / schedule	What it covers	Federal counterpart
Form MI-1040	Michigan Individual Income Tax Return	Form 1040
Schedule 1 (MI-1040)	Additions and Subtractions	Schedule 1 (Form 1040)
Schedule NR	Non-resident / Part-year Resident	N/A
Schedule W	Michigan Withholding	W-2/1099 withholding summary
MI-1040CR	Homestead Property Tax Credit	N/A
MI-1040CR-7	Home Heating Credit	N/A
MI-1040ES	Estimated Tax Payment Voucher	Form 1040-ES
City returns (various)	City income tax	N/A

Section 9: Refusal catalogue

Refusal catalogue table

ID	Situation	Action
MI-R-01	Part-year or non-resident return (Schedule NR)	Refuse — out of scope
MI-R-02	Corporate income tax (CIT)	Refuse — out of scope
MI-R-03	City income tax return (Detroit, Grand Rapids, etc.)	Refuse — separate filing; out of scope
MI-R-04	Multi-state income apportionment	Refuse — flag for professional review
MI-R-05	Amended returns	Refuse — out of scope
MI-R-06	Tax year other than current	Refuse — rate may differ
MI-R-07	Michigan Business Tax (MBT) or Corporate Income Tax	Refuse — different tax type

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional before filing or acting upon.

The most up-to-date, verified version of this skill is maintained at openaccountants.com.