Michigan Adopted Tax Deductions for Tips and Overtime

Michigan residents can reduce their state taxable income for qualifying tips and overtime pay under new state law.

Updated on Sept. 23, 2026 in Taxes

Isometric editorial illustration of a brass coin mechanism on a stone plinth, representing Michigan's new tax deduction policy. — Michigan has adopted new tax deductions for tips and overtime pay, aligning state tax laws with federal standards for tax years after 2025. AI Illustration. Upload story photo >

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The Michigan Department of Treasury has conformed its state tax deductions to federal standards for qualified tips and overtime compensation. The change applies to tax years starting after December 31, 2025, and provides a clear mechanism for reducing state taxable income.

Why it matters

By aligning state law with federal standards under Public Act 24 of 2025, Michigan has simplified the tax filing process for workers who earn significant portions of their income through tips or overtime. This policy adjustment allows eligible residents to subtract specific earnings from their state tax burden that were not already excluded from federal adjusted gross income.

The policy change enacted via Public Act 24 of 2025 applies to all qualified Michigan residents and nonresidents, with the latter group eligible for a proportional deduction. The new rules cover tax years beginning after December 31, 2025, and remain in effect through the end of 2028.

The players

Michigan Department of Treasury

The state agency responsible for managing tax policy, revenue collection, and the implementation of Public Act 24 of 2025 for Michigan taxpayers.

The details

Taxpayers who earn tips or overtime pay can now claim state deductions that mirror corresponding federal exclusions. By subtracting these specific amounts from their state taxable income, qualifying workers can potentially lower their overall state tax liability. Residents should ensure their state filings align with their federal adjusted gross income declarations, as the state deduction is applied to income not already excluded at the federal level.

Tax years eligible for these deductions begin after December 31, 2025.
This tax deduction policy is set to expire before January 1, 2029.

Money Landscape

This move marks a shift in Michigan's tax landscape by harmonizing state codes with federal standards under Public Act 24 of 2025. It aligns state policy with broader federal efforts to provide targeted relief for specific categories of household earnings.

If you earn tips or overtime, review your earnings records to prepare for the upcoming tax cycle. Consult with a qualified tax professional to ensure you correctly calculate your state deduction relative to your federal adjusted gross income for the relevant tax years.

The takeaway

Michigan residents earning tips or overtime can lower their state tax burden by claiming these new deductions starting in 2026. Keep detailed records of all tipped and overtime earnings to simplify your filings when you meet with your tax professional.