Overtime Tax Savings in Michigan
↻ Updated 2026 tax yearMichigan is one of the states where the federal deduction reaches your state return too. Because Michigan starts from federal taxable income and follows the Internal Revenue Code on a rolling basis, Schedule 1-A is already subtracted before Michigan applies a flat 4.25% on wage income — so the same $4,500 saves $580 federally and about $191 in Michigan tax on top.
Michigan starts from federal AGI, so the federal deduction does not flow through on its own — but 2025 PA 24 (HB 4961) created a Michigan deduction for qualified overtime using the federal §225 definition, for tax years 2026 through 2028. The effect matches the federal deduction; the mechanism is a separate state law. It was not available for 2025.
Michigan starts from federal AGI, so the federal deduction does not flow through on its own — but 2025 PA 24 (HB 4961) created a Michigan deduction for qualified overtime using the federal §225 definition, for tax years 2026 through 2028. The effect matches the federal deduction; the mechanism is a separate state law. It was not available for 2025.
Because Michigan conforms, the deduction cuts both bills — but $344 of Social Security and Medicare on the same dollars survives either way.
Why the deduction reaches your Michigan return
The four OBBBA deductions are below the line: they reduce federal taxable income, and they leave federal adjusted gross income untouched. That is why most states never see them. Michigan is an exception because its own calculation begins from federal agi rather than from AGI, and because it follows the Internal Revenue Code on a rolling basis rather than freezing to a fixed date.
Those two facts together mean no Michigan legislation was needed. The figure Michigan starts from already has Schedule 1-A subtracted from it, so the deduction arrived automatically the moment the federal provision took effect.
Michigan then applies a flat 4.25% on wage income. On the $4,500 in the example above, that is worth roughly $191 of state tax — a 4.25% effective rate on that slice of income.
What $4,500 of overtime premium is actually worth in Michigan
Take a single filer with $62,400 of other wages and $4,500 of qualified overtime premium — the defaults loaded in the calculator above. Federal taxable income falls by the full $4,500, worth $580 at this filer's bracket.
Michigan taxable income falls by the same $4,500, worth a further $191. Total saving: $771. The $344 of Social Security and Medicare on the same dollars is untouched, because these are income tax deductions and payroll tax is a separate system.
Move the sliders to your own numbers and the arithmetic follows. The two things that will not change are Michigan's treatment — the deduction flows through and the payroll tax, which applies to the first dollar and the last.
What overtime tax relief does not do, in Michigan or anywhere
Your overtime is still wages. It stays in boxes 1, 3 and 5 of your W-2 — the box 12 code TT is informational — so Social Security and Medicare are computed on exactly the same amount as before.
Only the premium half qualifies — the amount paid in excess of your regular rate, which is one third of a time-and-a-half payment. $13,500 of overtime pay produces a $4,500 deduction, not $13,500. The cap is $12,500 ($25,000 filing jointly) and it phases out above $150,000 of MAGI.
And all four OBBBA deductions expire after tax year 2028. Whatever Michigan does between now and then, the federal provision has a fixed end date.
Frequently asked questions
Is overtime taxed in Michigan?
Yes, but the federal deduction reduces it. Michigan starts from federal taxable income with rolling conformity to the Internal Revenue Code, so your Schedule 1-A deduction is already subtracted before Michigan applies a flat 4.25% on wage income.
On the example above, that is worth about $191 of Michigan tax on top of the $580 federal saving. $344 of Social Security and Medicare on the same dollars is unaffected.
How much will the overtime deduction save me in Michigan?
About $771 on the example above: $580 federal plus roughly $191 of Michigan tax, for a single filer with $62,400 of other wages and $4,500 of overtime premium.
A deduction is worth your marginal rate, not its face value, which is why $4,500 of income produces $580 rather than $4,500 of relief. Enter your own figures above for a number specific to you.
Does Michigan conform to the federal OBBBA deductions?
Michigan starts from federal AGI, so the federal deduction does not flow through on its own — but 2025 PA 24 (HB 4961) created a Michigan deduction for qualified overtime using the federal §225 definition, for tax years 2026 through 2028. The effect matches the federal deduction; the mechanism is a separate state law. It was not available for 2025.
That determination covers the overtime deduction; the senior and car loan interest deductions are tracked separately, though they usually follow the same rule because the mechanism is identical. Our conformity tracker shows all four deductions across all 50 states and DC.
Does the overtime deduction reduce my Social Security and Medicare tax in Michigan?
No, and not in any state. Qualified overtime remain in boxes 3 and 5 of your W-2, so the 6.2% Social Security and 1.45% Medicare are computed on the same wages as before. On the example above that is $344 which no OBBBA provision touches.
Combined with Michigan's income tax, which the deduction does reduce, that is why the practical relief is smaller than "no tax on overtime" implies.
References for Michigan
Michigan starts its income tax calculation from federal agi with rolling conformity to the Internal Revenue Code. That is what every status on this page is derived from.
- Starting point and IRC conformitysecondaryTax Foundation — State tax implications of the One Big Beautiful Bill ActStarting points and IRC conformity by state
- No tax on tipsprimaryMichigan Dept. of Treasury — Individual income taxTreasury's taxpayer notice on the new deductions could not be verified as a live URL, so we cite the department's income tax section and the enacting statute instead
- No tax on tips: HB 4961 / 2025 PA 24 — TY2026–2028
- ·IRS — Questions and answers on the deduction for qualified overtime — Confirms only the FLSA premium above the regular rate qualifies
- ·IRS Schedule 1-A (Form 1040) — Additional Deductions — Tips Part II, overtime Part III, car loan interest Part IV, seniors Part V
- ·Tax Foundation — State tax implications of the One Big Beautiful Bill Act — Starting points and IRC conformity by state
- ·Tax Foundation — 2026 State Income Tax Rates and Brackets — State wage-tax estimate; excludes local income taxes
- ·IRS Rev. Proc. 2025-32 — 2026 inflation adjustments — Tax year 2026 brackets & standard deduction
Conformity status last reviewed July 22, 2026. State law can change — check with the Michigan revenue department before filing.
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