All businesses need to pay taxes to federal, state, and local governments to legally operate. If your business falls out of legal compliance, you could face costly fines and penalties, even if you own an LLC or corporation. Taxes can be complicated. We created this list to help you prepare for your Michigan small business taxes. We’ll explain the Michigan business tax rate and the other types of taxes you may need to pay. This page only explains Michigan state taxes, but we have a page that explains federal taxes, too.
When you sign up for our Worry-Free Compliance service, you’ll get access to the business dashboard that will keep all your legal documents organized and in one place. Plus, we’ll send you reminders for those important deadlines (which vary greatly in Michigan).
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses..
Step 1: Establish your Michigan business’s corporate income tax obligations
Michigan charges a flat-rate corporate income tax (CIT) of 6%. All businesses pay the CIT on their taxable income if they have a “substantial nexus” in the state. This means the business has a physical presence or collects at least $350,000 in gross receipts in Michigan. Any business that owes less than $100 isn’t required to pay or file, even if it has a substantial nexus in the state. In addition, the business can elect the small business alternative credit. If you elect this credit, you will pay an alternate tax rate of 1.8%. You’ll also want to check if the municipality where the business operates charges an income tax. (Michigan formerly allowed businesses other than corporations to choose between CIT and the Michigan Business Tax (MBT), but the state is phasing out the MBT. Only businesses with a certified credit can file MBT in lieu of CIT).
Businesses must file an annual return by the last day of the fourth month after the end of their tax year, typically April 30th. If the business fails to file a return or pay its taxes, it will face a penalty of 5% of the tax due for the first two months, then 5% per month with a maximum total penalty of 25%. You will also pay interest on the amount due at 1% above the prime rate. The penalty is higher if you committed fraud or knowingly violated the code unless you can show reasonable cause (such as death, serious illness, fire, or theft).
Quarterly Estimated Tax Payments
Michigan requires corporations that expect to owe CIT over $800 to make quarterly estimated payments. Owners of flow-through entities must make quarterly estimated payments if they expect to owe more than $500 on their individual return. Taxpayers typically must make their estimated payments by the 15th of the months of April, July, October, and January. If you have not pre-paid at least 85% of your tax liability, you may face underpayment penalties and interest.
Step 2: Determine your Michigan business’s employment taxes
If your business hires employees, it must register and collect income taxes on all wages paid. You can register for withholding tax online or by mail. The withholding tax rate is 4.25% of employee wages, after deducting the personal exemption and dependency exemption allowance. Each employee will fill out a W-4 to determine their dependency exemption. Depending on the amount of wages the business pays, the state will require the business to pay withholding taxes monthly or quarterly by the 20th day of the month, or annually. At the end of each year, the business files a combined Sales, Use, and Withholding Taxes Annual Return by February 28th. All businesses must file an annual return even if they don’t owe withholding taxes for that year.
It’s important to note that several municipalities also collect income tax, which must be reported separately. Municipalities may have different due dates from the state, so it’s important for you to plan ahead. For example, Detroit’s annual returns are due on the 15th of the month.
It’s also important to remember that pass-through entities including S corporations, partnerships, LLCs (not electing corporate taxation), and sole proprietors don’t withhold income tax on distributions to shareholders, members, or partners. Instead, owners report income or loss on their individual tax returns.
Step 3: Establish your Michigan business’s additional state tax obligations
In addition to the corporate income tax, business taxes in Michigan include taxes that only businesses engaged in specific activities will pay. If your business is required to pay these taxes, you must register for a license before you engage in that activity.
Sales and Use Taxes
If your business plans to sell “tangible personal property at retail,” you must register to collect sales tax. You will collect a 6% sales tax on each sale the business makes. Then, the state collects the sales tax from the business monthly or quarterly by the 20th day of the month or annually by February 28th. All businesses must file an annual return each year by February 28th, even if they didn’t make any sales. If the business purchases items and doesn’t pay sales tax, it must pay a 6% use tax on those purchases.
If the business has employees, in addition to withholding income tax, it must register with the Unemployment Insurance Agency (UIA) and pay unemployment insurance taxes. You can register for your UIA Employer Account Number online using Michigan Web Account Management (MiWAM). The business must file the Employer’s Quarterly Wage/Tax Report online by the 25th of April, July, October, and January. The tax rate depends on how many years the business has been operating, its history of benefit charges, and taxable payroll. For new businesses, the typical rate is 2.7% for the first two years.
Franchise Tax and Excise Taxes
States typically charge franchise taxes to financial institutions or insurance companies for the privilege of doing business in the state. Michigan charges taxes on financial institutions at .29% of net capital. Insurance companies pay 1.25% of gross direct premiums written on property or risk located in Michigan. Neither of these businesses pays CIT, and standard businesses don’t pay a general franchise tax in addition to CIT.
Excise taxes are additional taxes charged on sales of specific goods. Michigan collects additional taxes from businesses holding Motor Fuel Licenses, IFTA Licenses (commercial transportation), and Tobacco Products Licenses.
Step 4: Prepare to file and pay your Michigan business taxes
When it’s time to file your state taxes, you can go online to the Michigan Department of Treasury to download forms, or you can pay online using the Michigan Treasury Online (MTO) portal. The Treasury mandates online filing for CIT, but you can mail payments or pay online with EFT. You can also use the MTO to file your Sales, Use, and Withholding Taxes Annual Return and pay these taxes. Because the Treasury receives taxes filed through the MTO right away, it’s a good idea to register and pay online rather than by mail. Remember, the deadline for filing an annual return is April 30, and Sales, Use, and Withholding is due February 28.
To get ready to file, you’ll need to get your business records in order. You’ll need all invoices, receipts, and accounting records to be able to calculate your taxable income. When you use our ZenBusiness Money app, we help you keep track of invoices and put the management of your business finances right at your fingertips. We’ll keep things organized and ready for you to easily access at tax time.
Do I need an accountant?
Taxes are complex, even with the single Michigan business tax rate. With all the forms and specific rates, most small businesses need professional accounting help to help do their taxes correctly. A professional accountant is personally dedicated to your business and will come to know your finances inside and out. They’ll know exactly which forms you need and what deductions and credits you can take. To avoid the serious consequences for those who don’t file or who make erroneous calculations in the fillings they submit, it’s a good idea to consider hiring a qualified professional.
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
We can help your business be ready for tax time
Our team of business experts understands Michigan small business taxes and deadlines. Use our ZenBusiness Money App to send invoices, collect payments, and keep track of documents right on your phone.
When you start your business with us, we’ll be there for you from start to finish.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- How much can a Michigan small business make before paying taxes?
Michigan doesn’t require a business that owes less than $100 to file or pay CIT.
- What percentage does a Michigan small business pay in taxes?
The percentage your Michigan small business pays in taxes can range from 1.8% (a non-retail business that elects the small business alternative credit and doesn’t have employees) to 19% or higher (a retail business that has employees, a municipality tax, and excise taxes).
- How does a Michigan small business pay taxes?
You can file and pay the Treasury online using the MTO.
- Do I have to file taxes for my small business in Michigan?
Every business with a substantial nexus in Michigan must file an annual tax return.