Last Updated: April 2026
Michigan's 4.25% flat income tax rate is moderate by US standards — comparable to Indiana, Colorado, and Utah. The more significant tax issue for Detroit and Southeast Michigan residents is the Detroit city income tax (2.4% for residents, 1.2% for non-residents working in Detroit). Combined, Detroit residents face a 6.65% effective rate — higher than many states that are considered 'high tax'.
Michigan's retirement income tax structure has been in flux following the Whitmer administration's 2023 pension tax legislation, which restored retirement income exemptions that had been reduced in 2011. This guide covers current Michigan tax rules, residency, and departure planning.
Michigan uses a domicile-based residency test with no separate 183-day statutory residency rule. Michigan residency terminates when you change your domicile to another state.
Michigan is your domicile if it is your permanent home — the place you intend to return to after any absence. To change Michigan domicile: (1) Establish a genuine new primary home in the destination state; (2) Get a new driver's licence and vehicle registration; (3) Register to vote in the new state; (4) Update employer records, banking, and professional licences; (5) File Michigan Form MI-1040 as a part-year resident for the departure year. Michigan Department of Treasury scrutinizes departures by high earners. Michigan focuses on: where does your spouse/family live, where do you spend most nights, where is your primary bank account, where do you have business ties.
For Detroit residents, one of the immediate benefits of moving outside Detroit (even to suburban Michigan) is eliminating the 2.4% Detroit city income tax. The Detroit tax applies to residents regardless of where they work. Moving to Troy, Bloomfield Hills, or any other Michigan suburb eliminates the city tax — potentially saving $2,400/year on $100,000 of income. Moving out of Michigan entirely also eliminates any Detroit city tax going forward. If you work in Detroit but live outside Detroit after moving: you pay 1.2% on Detroit-sourced wages as a non-resident, not 2.4%.
File Michigan Form MI-1040 as a part-year resident in the departure year. Michigan taxes worldwide income through the departure date and Michigan-source income after departure. Michigan-source income: wages for work physically in Michigan, Michigan rental income, Michigan business income, Michigan real estate gains.
Michigan's retirement income tax rules are among the most age-differentiated in the US, creating significantly different burdens based on the taxpayer's birth year.
| Birth Year | Pension/IRA Exemption |
|---|---|
| Before 1946 | All retirement income fully exempt |
| 1946–1952 | Private pension deduction $20,000 single / $40,000 joint; phased out above certain income |
| After 1952 | Exemption being phased back in under 2023 legislation; by 2026: $20,000/$40,000 exemption available |
Social Security is fully exempt for all Michigan residents at all income levels and ages. Military pension is fully exempt. Michigan government pension is generally exempt under the older rules.
Governor Whitmer's 2023 legislation (Public Act 4) reversed a 2011 law that had eliminated retirement income deductions for residents born after 1945. The restoration is being phased in through 2026, ultimately providing the $20,000/$40,000 deduction for all Michigan retirees. This makes Michigan more competitive for private-sector retirees compared to its 2011–2023 rules.
Michigan's 1.54% average effective property tax rate is above the national average. Key Michigan property tax features: (1) Principal Residence Exemption (PRE): exempts your primary home from 18 mills of school operating tax — reduces the effective rate significantly for owner-occupants; (2) Proposal A capped assessments: annual increases in taxable value capped at the lesser of 5% or inflation — protects long-term homeowners from assessment shock; (3) Uncapping on transfer: when a home is sold, assessed value resets to current market value — this 'uncapping' can significantly increase property taxes for buyers of long-held properties.
| Tax | Michigan | Ohio | Indiana |
|---|---|---|---|
| Income tax (flat) | 4.25% | 0–3.75% | 3.05% (2024) |
| Property tax | 1.54% | 1.59% | 0.84% |
| Sales tax | 6% | 5.75% | 7% |
| Local income tax | Detroit 2.4% | Many cities 1-2.5% | County rates 0.5-2.8% |
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Get Expert Departure Tax Help →Michigan has a flat 4.25% state income tax rate. Detroit residents additionally pay a 2.4% Detroit city income tax, for a combined 6.65% rate. The state rate has been 4.25% since 2012. Michigan has no local income tax outside of a handful of cities (Detroit, Highland Park, Flint, Grand Rapids, and others) — unlike Ohio which has widespread local income taxes in many cities.
Social Security is fully exempt from Michigan income tax for all residents at all ages and income levels. Pensions and IRA/401(k) distributions are subject to Michigan income tax with a birth-year-dependent exemption: residents born before 1946 — full exemption; born 1946–1952 — partial exemption ($20,000 single/$40,000 married); born after 1952 — exemption being phased back in through 2026. Military pensions are fully exempt. Michigan's 2023 legislation (reversing 2011 changes) improved the retirement tax picture for younger retirees.
Moving from Detroit to a Detroit suburb (Troy, Birmingham, Bloomfield Hills, Rochester, etc.) saves 2.4% on income in Detroit city income tax while keeping access to the Detroit metro area's employment, healthcare, and amenities. For a Detroit resident earning $200,000, this saves approximately $4,800/year immediately upon moving. Combined with Michigan state income tax at 4.25%, suburban Michigan residents face only 4.25% vs Detroit residents at 6.65%. Many high earners in the Detroit area choose suburban residence specifically to avoid the city income tax.
After changing domicile from Michigan to Florida or Texas, you owe Michigan income tax only on Michigan-source income: wages for work physically performed in Michigan, Michigan rental income, Michigan business income, and Michigan real estate gains. Retirement income (pension, IRA, Social Security) is sourced to your state of residence — after moving to Florida, these distributions are taxed by Florida (which has no income tax), not Michigan.