Michigan Eliminates Taxes on Tips, Overtime, and Social Security

The measure eliminates the 4.25 percent state levy on tipped and overtime wages and Social Security income, delivering broad tax relief for seniors and workers.

Shoppers at a grocery store in Canton, Mich., on Oct. 11, 2024. Madalina Vasiliu/The Epoch Times

Michigan Gov. Gretchen Whitmer has signed a new budget bill into law that removes state taxes on tips, overtime pay, and Social Security benefits, mirroring recent federal tax changes under President Donald Trump’s signature One Big Beautiful Bill Act, which provided similar relief.

The measure, approved by lawmakers last week and signed on Oct. 7, is part of Michigan’s $81 billion fiscal 2026 budget, a bipartisan plan that funds state operations through September 2026.

By fully exempting those three categories of income from state taxation, Michigan joins nine other states—including Florida, Texas, and Wyoming—that have no state income tax and therefore already exempt tips, overtime pay, and Social Security benefits by default.

“This balanced budget delivers on the kitchen-table issues that make a real difference in people’s lives,” Whitmer said in a statement announcing the signing. “Our budget fixes the damn roads, cuts taxes for seniors and working families, funds first responders, secures core health care services, protects our air and water, and increases government efficiency to save taxpayers time and money.”

Under the new law, Michigan residents will no longer pay the 4.25 percent state income tax on earnings derived from tips or overtime, or on Social Security benefits. The change, according to Whitmer’s office, is expected to save “hundreds of thousands of seniors and working families money on their taxes every year.”

The Whitmer administration has not yet released a statewide average for household savings, but similar provisions in the federal One Big Beautiful Bill Act were projected to reduce federal tax burdens for service-sector employees and hourly workers by thousands of dollars annually. Both the federal initiative and the move in Michigan reflect growing bipartisan interest in easing the tax load on lower- and middle-income workers.

“People are frustrated when they struggle to pay their bills while the government burns through billions of dollars of their money like it’s nothing,” Michigan House Speaker Matt Hall, a Republican, said in a statement. “This budget makes a significant difference in eliminating waste, fraud and abuse to lower state spending and give the taxpayers better value for their dollars. That’s how we were finally able to get our local roads fixed and pass the public safety trust fund, all while eliminating taxes on tips, overtime and social security.”

Michigan’s action follows the Trump administration’s One Big Beautiful Bill Act, enacted on July 4, which created new federal deductions allowing workers to write off up to $25,000 in tip income and up to $12,500 in overtime pay each year between 2025 and 2028. The law also grants seniors aged 65 and older a new $6,000 annual deduction on Social Security income—relief the Social Security Administration says will eliminate federal taxes for nearly 90 percent of beneficiaries.

Whitmer’s state budget also expands Michigan’s Working Families Tax Credit, continues the retirement tax rollback for about 500,000 households, and includes significant new spending for infrastructure and public safety. Nearly $2 billion will go toward long-term state and local road repairs, with additional funding for bridges, public transit, and water infrastructure projects aimed at replacing lead service lines.