MI
Does Michigan tax tips and overtime?
The federal deduction and the Michigan deduction are separate questions. Here is where Michigan actually lands, and why.
How Michigan builds its tax base
Michigan starts from your federal adjusted gross income. Both deductions are below-the-line — they reduce federal taxable income but leave AGI untouched — so neither reaches this state's return automatically. Anything you get here had to be legislated separately.
Tips in Michigan
PartlyMichigan's base is federal AGI (MCL 206.30 defines "taxable income" as AGI as defined in the IRC with state adjustments), so the below-the-line IRC 224 deduction never flowed through automatically; Michigan therefore enacted its own parallel deduction in 2025 PA 24 (HB 4961, signed 7 Oct 2025), which amended MCL 206.30 to incorporate the IRC 224 definition of "qualified tips" - but only for tax years 2026, 2027 and 2028, so there is NO Michigan tip deduction for tax year 2025 even though the federal deduction existed that year; nonresidents may deduct only tips tied to services performed in Michigan.
Source: Michigan Dept. of Treasury Taxpayer Notice, "New Deductions for Qualified Overtime Compensation and Qualified Tips" (6 Jan 2026); 2025 PA 24 (HB 4961) amending MCL 206.30 · last reviewed
Overtime in Michigan
PartlySame mechanism and same vehicle: 2025 PA 24 (HB 4961) added a Michigan deduction incorporating the IRC 225 definition of "qualified overtime compensation" (FLSA premium portion only, hours over 40/week), effective tax years 2026-2028 only - nothing for tax year 2025. Treasury's notice indicates the Michigan deduction generally mirrors the amount taken federally for the same year; I could not independently confirm whether Michigan replicates the federal $12,500/$25,000 caps and MAGI phase-outs, so treat the cap mechanics as unverified.
Source: Michigan Dept. of Treasury Taxpayer Notice (6 Jan 2026); 2025 PA 24 (HB 4961); Senate Fiscal Agency analysis of HB 4961 (1 Oct 2025) · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.