New Tax Exemptions in Michigan
Trenton — Governor Gretchen Whitmer joined a bipartisan group of lawmakers at a diner in Downriver on Wednesday morning to celebrate a new law. This law exempts tips, certain overtime payments, and Social Security income from the state’s 4.25% income tax starting next year.
The aim of removing state income taxes on tips and overtime pay is to align with a new federal law signed by President Donald Trump in July, which fulfills a campaign promise while providing some tax relief for Americans.
The Michigan Legislature passed the tax credits last week, and Whitmer signed the bill on Tuesday alongside several other budget-related measures to fund state government until next September.
Matt Hall, chairman of the Kalamazoo County Republican Party, stated that removing state income taxes on tips and Social Security income was a key goal for House Republicans during budget discussions, noting the consistency with the new federal tax law.
“How unfortunate would it be to think that tips, overtime, and Social Security are tax-free except for state taxes?” Hall remarked.
At Mama’s Restaurant on Fort Street in Trenton, Hall endorsed the new law, joined by Whitmer, Democratic House Minority Leader Ranjeev Puri, and local state legislators, including Democratic Sen. Darin Camilleri and Republican Rep. Riley Linting.
Whitmer emphasized the importance of tips for service workers, saying, “As any server or delivery driver will tell you, tips can be the difference between paying your rent or buying fresh groceries.” She added that Michiganders working hourly jobs deserve to keep what they earn.
According to Whitmer, around 300,000 Michigan workers could save an average of $400 a year due to the tax exemption on tips. When combined with the federal tax cut, she noted that these savings could rise to an average of $1,500.
“This is significant for those who work hard daily, including the staff at Mama’s Restaurant,” Whitmer remarked, referring to the diner as a beloved local staple.
She mentioned that the average hourly worker would see a $500 saving in state income taxes in addition to approximately $1,500 in federal taxes related to overtime work.
Whitmer explained that the new tax cuts would be based on a rollback of income taxes on pensions starting in 2023 and an expansion of the Earned Income Tax Credit for low-income households.
The Dimopoulos family, owners of Mama’s Restaurant, expressed optimism that the tax exemption would enhance their staff’s take-home pay and alleviate some payroll complications involving tip distribution.
Aspasia Dimopoulos acknowledged the contributions of Cheryl Andersen, the diner’s first server when it opened 34 years ago, highlighting the bill as a win for everyone in the food and beverage industry who relies heavily on tips.
The income tax credit is set to be valid for three calendar years—2026, 2027, and 2028—expiring on January 1, 2029. The federal “One Big Beautiful Bill Act” permits workers to deduct up to $25,000 of taxable income from tips and overtime payments.
Furthermore, under the new federal law, retirees can claim a tax exemption of $20,000 for single filers and $40,000 for joint filers, as well as deduct Social Security income from their taxable income.
