With nearly one million small businesses across the state, Michigan small businesses make up 99.6% of all Michigan businesses and employ nearly half (47.9%) of all Michigan employees, according to 2022 data from the Small Business Administration’s Office of Advocacy.
If you own a business in the Great Lakes state or if you want to start one, it’s crucial to understand how small business taxes in Michigan work. Keep reading for a full breakdown of Michigan small business taxes and when (and how) to pay them.
What kind of business taxes do you have to pay in Michigan?
As a business owner in Michigan, you may end up paying corporate income taxes, flow-through entity taxes, sales and use taxes, withholding taxes, or unemployment insurance taxes. The type of taxes you pay depends on your business entity and gross income.
Michigan corporate income tax
Michigan imposes a corporate income tax (CIT) on corporations and Limited Liability Companies (LLCs) that elect C corp status. Pass-through entities, including S corporations, partnerships, and sole proprietorships, don’t have to pay the CIT.
The CIT, which replaced the Michigan Business Tax (MBT) for most taxpayers, is a flat rate of 6%. You can take one tax credit with the CIT, the small business alternative credit, which offers an alternate tax rate of 1.8% of your adjusted business income.
There are two exceptions where you don’t need to file a return or pay CIT as a C corp or LLC taxes as a C corp:
- If you have less than $350,000 in allocated or apportioned gross receipts or
- If you have less than or equal to $100 in annual liability.
Keep in mind that the gross receipts threshold doesn’t apply to financial institutions or insurance companies.
How to pay Michigan CIT and file your returns
If you owe CIT, you have to file an annual CIT return by the last day of the fourth month after the end of your taxable year. If your tax year ends in December, for example, your CIT filing deadline will be April 30.
If you expect an annual corporate tax liability over $800, you also have to file quarterly estimates using Form 4913. If you operate on a calendar year, your quarterly returns and payments are due April 15, July 15, October 15, and January 15. If you’re not on a calendar year, you need to file quarterly returns and make estimated payments on the 15th day of the first month after each quarter.
You can file your returns and make payments to the Michigan Department of Treasury on the Michigan Treasury Online (MTO) portal.
Michigan flow-through entity tax
The Michigan flow-through entity (FTE) tax is an elective tax that certain flow-through (or pass-through) entities in Michigan can take. That applies to S corps, partnerships (including general partnerships, limited partnerships, and limited liability partnerships), and LLCs that file federal returns as partnerships. Single-member LLCs, sole proprietorships, and C corps aren’t eligible to take the FTE tax.
The FTE tax allows a pass-through entity to pay tax on certain business income at the individual income tax rate, which means the business owner has fewer tax obligations at the individual level. FTE tax is calculated based on the Michigan portion of the positive business income tax base. The rate was recently reduced to 4.05% for tax years beginning in 2023.
To make the FTE election—which is effective for three years—you need to submit an electronic payment to the Treasury through MTO. You have to make your election payment by the 15th day of the third month of your tax year; if you operate on a calendar year, that’s March 15.
How to file your FTE return and pay taxes
If you take the FTE election, your annual FTE return (Form 5772) is due on the last day of the third month after the end of your tax year. For calendar-year businesses, the deadline is March 31. Your estimated unpaid tax liability for the tax year is due by the same date.
If you expect your annual tax liability to be more than $800 for the year, you’re required to make estimated quarterly payments. Calendar-year operations have to make the payments on or before April 15, June 15, September 15, and January 15. If you operate on the Michigan fiscal year, you have to make the payments by January 15, March 15, June 15, and October 15.
All payments have to be made online through the MTO system.
Michigan sales, use, and withholding taxes
Michigan cities and local districts aren’t allowed to impose sales and use taxes, but the state imposes both sales and use taxes. If your business sells tangible personal property in Michigan, you have to pay a 6% state sales tax on everything you sell. You may also have to pay a 6% use tax on all taxable items you bring into Michigan or purchase online from out-of-state retailers that don’t collect sales tax.
- Sells retail goods to the final consumer
- Sells tangible personal property in addition to providing a service (like repairing, improving, or altering personal property owned by others)
You also have to register for and pay use tax on sales and rentals if you:
- Do business in Michigan but don’t have a retail location in Michigan
- Collect use tax from your customers
- Sell telecommunication services
- Rent hotel and motel rooms or other accommodations
- Lease tangible personal property to Michigan customers from a location in or out of Michigan
Sales and use taxes are also reported alongside withholding taxes. If you’re required as an employer to withhold federal income tax for your employees, you have to withhold Michigan income tax for your employees, too. The tax rate for 2023 is 4.05%. If you’re registered to pay withholding tax, you have to file an annual return, even if no tax is due.
How to pay Michigan sales, use, and withholding taxes
If you’re registered to pay sales and use taxes or withholding taxes, you have to file a sales, use, and withholding tax return, even if you don’t owe any tax. You’ll get assigned a filing frequency based on your estimated level of sales tax collected. Here are the due dates:
- Monthly filers: The due date is on or before the 20th day of the following month. For example, if your reporting period is March, your return and payment are due no later than April 20.
- Quarterly filers: The due date is on or before the 20th day of the month after the quarter ends. For example, if it’s Q1, your return and payment is due no later than April 20.
- Annual filers: The due date is February 28 following the tax year reported.
Need help determining withholdings for your employees? Check out Gusto’s Michigan Hourly Paycheck and Payroll Calculator.
Michigan unemployment insurance taxes
If you have employees, you have to register with the Michigan Unemployment Insurance Agency (UIA) and pay unemployment insurance taxes. This money goes to Michigan workers who qualify for unemployment assistance.
The tax rate depends on a few factors, including your business experience, number of employees, and taxable payroll. For new businesses, the tax rate is 2.7% for their first two years.
How to pay unemployment insurance taxes
Want to see how Michigan’s unemployment tax rate compares to other states? Here’s an updated list of unemployment tax rates for every state.
Michigan state income taxes
If your business is considered a disregarded entity for tax purposes (think: a single-member LLC or sole proprietorship), you don’t technically pay business taxes, but you’ll pay state income taxes as an individual. The Michigan Treasury recently reduced the rate from 4.25% to 4.05% for the 2023 tax year. On January 1, 2024, however, the rate will increase back to 4.25%.
You also have to make estimated quarterly payments if your tax liability will be $500 or more for the year. Those payments are due April 15, June 15, and September 15 of the tax year in question, and January 15 of the next tax year.
Michigan business tax breakdown
Here’s a summary of Michigan business types and their federal and state tax obligations. Keep in mind that pass-through entities don’t pay federal income taxes.
|Business type||State income taxes||Sales and use taxes||Unemployment insurance taxes||Flow-through entity tax||Federal taxes|
|C corporation||Yes, 6% corporate income tax rate||Yes, if applicable||Yes, if you hire employees||No||Yes|
|S corporation||No||Yes, if applicable||Yes, if you hire employees||Yes, if elected||No|
|LLC with C corp election||Yes, 6% corporate income tax rate||Yes, if applicable||Yes, if you hire employees||No||Yes|
|LLC||No||Yes, if applicable||Yes, if you hire employees||Yes, if elected and filing as a partnership||No|
|Partnership||No||Yes, if applicable||Yes, if you hire employees||Yes, if elected||No|
|Sole proprietorship||No||Yes, if applicable||Yes, if you hire employees||No||No|
Get help filing your Michigan state business taxes with Gusto
If you want more support filing your federal and state business taxes, turn to Gusto. Our flexible payroll management platform has no payroll caps and lets you pay your employees, contractors, and out-of-state team members all on the same system. Sign up for Gusto now or check out our complete guide to Michigan small business payroll regulations.