Michigan Eliminates Taxes on Tips, Overtime, and Social Security Benefits in Sweeping Tax reform
LANSING, MI – In a significant change for michigan workers, taxes on tips, overtime pay, and Social Security benefits will be eliminated for three years, beginning January 1, 2024, following legislation signed into law by Governor Gretchen Whitmer. The move, part of a broader tax overhaul, aims to put more money directly into the pockets of Michigan residents, particularly those in the service industry and retirees.
The new law represents a departure from previous tax structures and arrives alongside other adjustments to the state’s revenue streams. While the elimination of these taxes provides immediate financial relief to workers, nonpartisan analysts estimate the individual income tax exemptions will cost the state approximately $158 million in revenue next year. The legislation also avoids some business tax cuts proposed in earlier bills that would have further reduced state revenue by hundreds of millions of dollars.
Beyond the tax eliminations, the law includes a complex restructuring of funding for road repairs. This involves eliminating the sales tax on gasoline but increasing the gas tax at the pump by 20 cents per gallon, redirecting corporate income tax revenue previously allocated for economic growth, and implementing a new 24% wholesale tax on marijuana.
This tax reform follows a separate legislative action earlier this year addressing Michigan’s tipped wage. A recent Michigan Supreme Court ruling threatened to raise the tipped wage to $15 per hour by 2031, matching the regular minimum wage.However, many tipped workers expressed concern that increased base wages could lead to reduced customer tipping, ultimately decreasing their overall income. The newly signed law caps the tipped wage increase to $7.50 per hour by 2031 – half the regular minimum wage – with potential adjustments for inflation.
