New state law exempts Michigan income tax on tips, overtime, Social Security income

By Chad Livengood, MediaNews Group

Governor Gretchen Whitmer and a bipartisan group of lawmakers gathered at a Downriver restaurant Wednesday morning to have a good time a brand new regulation that may exempt suggestions, sure additional time and Social Safety earnings from the state’s 4.25% earnings tax subsequent 12 months.

The elimination of state earnings taxes on suggestions and additional time is deliberate to be accompanied by a brand new federal regulation that President Donald Trump signed in July — fulfilling a marketing campaign promise — that exempts earnings from federal taxes, with some restrictions.

The Legislature authorised the brand new tax exemption final week, and Whitmer signed it into regulation Tuesday, together with quite a few different payments tied to the passage of a brand new funds to fund state authorities by way of September of subsequent 12 months.

Eliminating state earnings taxes on suggestions, additional time and Social Safety earnings was a precedence for Republicans within the Home of Representatives throughout latest funds negotiations, so the state regulation is in keeping with the brand new federal tax regulation, stated Speaker Matt Corridor, a Kalamazoo County Republican.

“I imply, how disappointing once they suppose they do not get tax on suggestions, additional time and Social Safety, besides relating to their state taxes,” Corridor stated.

Corridor joined Whitmer, Home Democratic Chief Ranjeev Puri of Canton Township and two Downriver lawmakers — Democratic Sen. Darrin Camilleri of Trenton and Republican Rep. Rylee Linting of Grosse Ile – to advertise the brand new regulation at Mother’s Restaurant on Fort Avenue in Trenton.

“As any waiter, bartender or supply particular person will inform you, suggestions are sometimes the distinction between making or lacking a lease fee, shopping for contemporary vegetables and fruit for your loved ones, or lastly getting that automotive restore accomplished that you’ve got been laying aside,” Whitmer stated. “Michiganders with hourly jobs are sometimes on their ft all day. They earn their suggestions, and so they need to maintain them.”

As much as 300,000 employees in Michigan will save a median of $400 yearly in taxes on suggestions, Whitmer stated.

Mixed with the federal tax credit score, the financial savings will increase to a median of $1,500, the Democratic governor stated.

“That is a giant deal for individuals who work onerous on daily basis, together with the employees right here at Mother’s Restaurant,” stated Whitmer, who known as the restaurant “a Trenton establishment.”

For additional time, the typical hourly employee saves $500 on his or her state earnings taxes and one other $1,500 on federal taxes, Whitmer stated.

The brand new tax credit score “builds on” the 2023 rollback of earnings taxes on retirement earnings and an growth of earnings taxes for low-income households, the governor stated.

Mother’s Restaurant house owners Konstantinos and Aspasia Dimopoulos stated the brand new tax exemption will improve their staff’ take-home pay and scale back the payroll burden they endure every week by eradicating suggestions for servers from hourly wages.

Aspasia Dimopoulos, who goes by Sia, highlighted the work of the primary server the restaurant employed, Cheryl Andersen, 34 years in the past, once they opened the restaurant.

“This invoice is a triumph for Cheryl and everybody within the meals and beverage trade that depends closely on suggestions,” stated Aspasia Dimopoulos.

The earnings tax deduction is simply legitimate for the subsequent three calendar years – 2026, 2027 and 2028 – and expires on January 1, 2029, in keeping with a analysis by the nonpartisan Home Fiscal Company.

The federal One Huge Lovely Invoice Act permits staff to deduct as much as $25,000 of taxable earnings from suggestions or additional time compensation.

The brand new federal regulation additionally permits retirees to assert an earnings tax exemption of $20,000 for single filers or $40,000 for joint filers, and to deduct Social Safety earnings from their taxable earnings.

Initially printed: October 10, 2025 at 11:28 AM EDT