News Story

Michigan Treasury stiffs workers on new tax cut

Michigan tax authority refuses to update withholding schedules for employers to reflect 2023 tax cut

Workers will have a hard time taking advantage of Michigan’s recent tax cut, thanks to the Michigan Department of Treasury.

The Treasury Department publishes tax schedules that employers use to calculate the amount of money they should withhold from their employees’ paychecks. The state income tax rate dropped from 4.25% to 4.05% January 1, after Gov. Whitmer and legislative Democrats failed to block an automatic tax reduction written in Michigan law.

The Treasury Department, however, says it will not be updating the current schedules to reflect the tax cut.

“The state lowered the tax rate but the governor isn’t letting people collect more from their paychecks,” said James Hohman, director of fiscal policy at the Mackinac Center.

Employers can try to figure out the lower withholding amounts on their own, Hohman told CapCon. But if they do not withhold enough, they are subject to penalties, giving them an incentive not to reduce withholding amounts.

The department published a notice about the rate change. “Treasury’s withholding rate tables for the 2023 tax year will not be updated to accommodate the revised rate,” the notice reads. “Individuals and fiduciaries with questions about the effect of the rate change on the amount of tax being withheld from their income should contact their employer or administrator directly.”

The rate cut came after the Whitmer administration tried, without success, to prevent workers from receiving the tax cut, which was triggered by a 2015 requiring a tax cut when the growth in state revenue collections exceeds the rate of inflation. Michigan Treasurer Rachael Eubanks asked Attorney General Dana Nessel for a legal opinion on whether the tax cut is event-driven or permanent. 

The very next day, Nessel issued an opinion saying the tax cut is event-driven and won’t take place in years when events do not trigger it. While the 2023 tax cut would take place, the rate would revert back to 4.25% in 2024 and beyond.

“The 2023 withholding tables were published at the beginning of the tax year to provide guidance for calculating tax due at the 4.25% income tax rate,” said Ron Leix, spokesman for the Michigan Treasury. “They will not be updated to reflect the 2023 reduced income tax rate of 4.05%.” 

“Treasury takes a neutral position on adjusting withholding amounts based on the income tax rate change,” Leix told CapCon.

Leix also provided a link to a guide for employees.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.