Michigan Payroll: Employer Tax and Software Guide

Michigan withholds state income tax at a flat 4.25 percent. No brackets, no filing status, one multiplication. On the state layer alone it is among the simplest payroll calculations in the country, and a small employer can reasonably expect it to be uneventful.

Underneath that simple state rate sit roughly 24 separate city income taxes, each with its own registration, its own rate pair, and its own return. Detroit alone charges 2.4 percent of a resident's income, the highest municipal income tax rate in the Midwest. The jurisdiction that applies is determined by where an employee physically works, which means a hybrid team can create a filing obligation in a city your business has no office in and no other connection to.

That layer is where Michigan payroll actually goes wrong, and it is the thing worth checking a provider on. This guide covers what Michigan requires from employers in 2026, including a sick time law that only reached the smallest businesses in October 2025 and an unemployment wage base that moves with a trust fund balance, and how 10 payroll providers price the work.

What Michigan actually taxes

Four layers, and the difference between the second row and everything else is the entire story of Michigan payroll administration.

State withholding uses Form MI-W4 as the employee certificate, and the supplemental rate applied to bonuses is the same flat 4.25 percent as regular wages. Any employer that withholds federal income tax must register to withhold Michigan tax as well, including businesses based outside the state.

The 24-city layer

This is the part of Michigan payroll that has no equivalent in most states and the part that decides whether a provider is a good fit here.

Every Michigan city income tax follows a two to one resident to non-resident ratio required by Act 284, so the rate pairs are structured rather than arbitrary. Residents are taxed on all compensation regardless of where the work is performed; non-residents are taxed only on income earned inside the city limits. The employer registers with each applicable city separately, withholds at the correct rate, and files that city's return on its own schedule. Nothing about this passes through the state filing.

For a single-site employer outside a taxing city, none of this applies and Michigan is a genuinely easy state to run payroll in. For an employer in Detroit, Grand Rapids, or Lansing, or one with remote staff scattered across the state, the number of separate registrations and returns is the workload, and it is the workload a provider either absorbs or hands back to you.

Unemployment tax and the wage base that moves

Michigan runs an unusually responsive unemployment system, and both the rate you pay and the base you pay it on can change without anything happening at your business.

The Unemployment Insurance Agency describes Michigan's system as one of the most heavily experience-rated in the country, meaning an employer's rate tracks its own benefit charges and payroll size more closely than in most states. In practice that makes claims management worth more here than the average, because the cost of a charged claim reaches your rate more directly. Our guide to state unemployment tax covers how experience rating produces that number.

Minimum wage and earned sick time

Both of these changed recently and both are still moving, which makes Michigan an unusually poor state to run on guidance written even eighteen months ago.

Minimum wage is on a scheduled climb

The increase to $13.73 was confirmed by the Department of Labor and Economic Opportunity in December 2025. The schedule running to $15.00 in 2027, with inflation adjustments after that, follows from the Michigan Supreme Court decision in Mothering Justice v. Attorney General and the legislative amendments that followed it. The tip credit is available only where reported tips actually bring the employee to the full minimum, and the employer makes up any shortfall. Our guide to the minimum wage for tipped employees covers how that test works.

Earned sick time now applies to everyone

The Earned Sick Time Act replaced the Paid Medical Leave Act and reached the smallest employers only recently, which is why a lot of Michigan small business guidance is still wrong about it.

Employers may either accrue at one hour per thirty hours worked or frontload the annual cap at the start of the benefit year, and frontloading is generally the simpler administrative choice for a small team because it removes the running accrual calculation. Amendments signed in February 2025 softened parts of the original ballot initiative language, so guidance published in late 2024 describes requirements that were subsequently changed.

Workers compensation, new hire reporting, and what Michigan does not require

Workers compensation has two separate triggers

The second test is the one small employers miss, because it catches a business that never has three people at once but does have a single reliable full-time employee. Unlike Texas, Michigan offers no general opt-out for private employers, so for most businesses with staff the question is which policy rather than whether to have one.

New hire reporting goes to its own agency

Michigan employers report new hires to the Michigan New Hire Operations Center within 20 days of the date of hire. This sits under federal law and Michigan statute together, supports child support enforcement rather than tax administration, and is entirely separate from the quarterly wage and tax report filed with the Unemployment Insurance Agency. Filing one does not satisfy the other, and that conflation is the most common reporting error in the state. Our guide to new hire reporting covers the federal framework and how state deadlines differ.

10 payroll providers for Michigan employers compared

Every provider below handles Michigan state withholding and quarterly UIA reporting, which is the easy part. The column that separates them for a Michigan employer is city income tax filing, and it is worth treating as a qualifying question rather than a feature comparison.

OnPay

One plan at $49 per month plus $6 per employee, everything included, no tiers. Multi-state is part of the base plan rather than an upgrade, pay runs are unlimited, and OnPay maintains a detailed Michigan tax and registration guide covering both Treasury and Labor registration, which is a reasonable proxy for whether a vendor treats the state as more than a line in a tax table.

Gusto

The most common first payroll purchase for US small businesses, with automatic tax filing, published pricing, and the strongest onboarding experience among payroll-first platforms. Simple runs $49 per month plus $6 per employee after a base increase in early 2026, and Gusto handles Michigan state and city filings along with the reciprocity certificates that come up on the Ohio and Indiana borders.

The single-state limit on Simple is the constraint to price in. Michigan borders three states and a Toledo or South Bend hire moves you to Plus at $80 plus $12 per employee.

Patriot Software

The cheapest legitimate full-service payroll on the market, and unusually for the budget tier it files local taxes rather than stopping at state level. Full Service is $37 per month plus $5 per employee, with additional states at $12 per month each. In a state with roughly 24 city income taxes, local filing at this price is the most economically interesting combination on the list.

Square Payroll

At $35 per month plus $6 per person, Square is the cheapest full-service option with published pricing, and for a Detroit or Ann Arbor restaurant already running Square point of sale, timecards and tips flow into payroll with no integration work. Michigan's tipped cash wage of $5.49 sits well above the federal floor, so tip credit arithmetic matters here.

SurePayroll

Owned by Paychex and built for very small employers and household employers. Full Service is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee that is the most economical multi-state arrangement here for a very small team.

QuickBooks Workforce Payroll

Core is $50 per month plus $6.50 per employee, and the argument for it is unchanged: if your books live in QuickBooks Online, payroll reaches the general ledger without an export. For a Michigan employer with city tax exposure, confirm local filing coverage for your specific cities before assuming the state-level filing extends to them.

ADP RUN

ADP has the deepest local tax compliance engine in the category, and Michigan is a state where that depth has something to do. Registering with and filing for several city income tax administrators is routine work for ADP in a way it is not for the budget platforms, and for an employer with staff spread across Detroit, its suburbs, and a taxing city elsewhere, that is the specific problem worth paying to remove.

The cost is opacity. ADP does not publish RUN pricing; third-party estimates put Essential near $79 per month plus $4 per employee, but every quote is individual, and contracts typically run a year with automatic renewal.

Paychex Flex

Paychex competes on service rather than software, and unusually among quote-driven vendors it publishes an entry rate: Essentials at $39 per month plus $5 per employee, with higher tiers quoted individually. It maintains a Michigan presence and publishes employer guidance on the Earned Sick Time Act, which is the kind of recently changed rule where having someone to call has real value.

Paylocity

Paylocity sits between small-business payroll and full HCM, aimed at companies that have outgrown basic payroll. Its onboarding module handles document collection and e-signature as part of a configured workflow, and it maintains per-state tax compliance resources. Pricing is quote-based and implementation is a project rather than a signup.

Rippling

Rippling unifies payroll, HR, and IT provisioning on one employee record, and its own Michigan guidance covers filing federal, state, and local payroll taxes with the right agencies. The core platform is $35 per month plus $8 per employee with payroll as a separate module, and real configurations commonly land well above the headline figure.

What each provider actually costs a Michigan employer

Published rates at three headcounts, with a column for what a second state adds. Michigan borders Ohio, Indiana, and Wisconsin, so multi-state pricing reorders this list more often than it would for a landlocked employer.

Patriot is the interesting row. It is the cheapest full-service option at every headcount and it files local taxes, which in a state with roughly 24 city income taxes is a combination the other budget platforms do not offer. If your staff all work outside a taxing city, that advantage disappears and the comparison becomes a plain price question, in which Square and Patriot lead.

Choosing a payroll provider for Michigan

Before you choose

FirstHR does not process payroll, file payroll taxes, or administer benefits. Every provider above does something we do not, and if the city filing question is what brought you here, one of them is the answer rather than us.

What we handle is the document layer feeding payroll: onboarding workflows, e-signature on the federal I-9 and W-4 and the Michigan MI-W4, offer letters, employee records, and document management for 5 to 50 employee US teams at a flat $98 to $198 per month. Michigan gives that layer more to do than most states, because the record that determines a city withholding obligation is a verified work location rather than a mailing address, reciprocity certificates for six neighboring states have to be collected and kept current, and the new hire report is due within 20 days to an agency your payroll provider may or may not file with. If the recurring problem is that this paperwork arrives late and nobody is certain what a given employee submitted, that is a records failure rather than a payroll failure. Our Michigan HR compliance guide covers the wider set of state obligations beyond payroll.

Frequently Asked Questions

What is the Michigan payroll tax rate?

A flat 4.25 percent for state income tax withholding, with no brackets and no filing status, and the same rate applies to supplemental payments such as bonuses. See our overview of payroll taxes by state for how this compares elsewhere. Roughly 24 cities levy an additional income tax withheld and remitted separately by the employer. The state rate has been 4.25 percent since 2012, and the Treasury confirmed in April 2026 that the conditions for an automatic reduction were not met.

Which Michigan cities have a city income tax?

About 24, in three tiers. Detroit is highest at 2.4 percent for residents and 1.2 percent for non-residents. Grand Rapids and Saginaw sit at 1.5 percent and 0.75 percent, with Highland Park also above the base level. Around 20 remaining cities are at 1.0 percent and 0.5 percent. Every pair follows the two to one ratio required by Act 284.

Does a Michigan employer withhold city income tax for remote workers?

Possibly. Jurisdiction follows the physical location where work is performed, not a mailing address. An employer in a taxing city withholds for everyone working within it and for employees who live in that city regardless of where they work, so a hybrid employee at home inside a taxing city can create an obligation elsewhere. Postal codes are not a reliable guide to city limits.

What is the Michigan unemployment tax rate and wage base?

New employers pay 2.7 percent for roughly two years, with construction set at the industry average and materially higher. After that the Agency assigns an experience rate, and Michigan describes its system as among the most heavily experience-rated in the country. The wage base is $9,500 by statute, reduced to $9,000 while the Trust Fund holds $2.5 billion for two consecutive quarters. Delinquent employers pay on $9,500 regardless.

What is the Michigan minimum wage?

$13.73 per hour from January 1, 2026, up from $12.48. The tipped cash wage is $5.49, set at 40 percent of the standard rate, and the rate for 16 and 17 year olds is $11.67. A training wage of $4.25 applies to newly hired employees aged 16 to 19 for a limited period. The standard rate is scheduled to reach $15.00 on January 1, 2027.

What is the Michigan Earned Sick Time Act and who does it cover?

ESTA replaced the Paid Medical Leave Act and covers essentially every Michigan employer. Businesses with 11 or more employees became subject on February 21, 2025, and those with 10 or fewer on October 1, 2025. Employees accrue one hour per 30 hours worked, or the employer may frontload the annual cap: 72 hours for larger employers and 40 hours for smaller ones.

Is workers compensation required in Michigan?

For most employers with staff, yes. Coverage is required at three or more employees at any one time including part-time, or with at least one employee working 35 or more hours per week for 13 or more weeks in the preceding 52. The second test catches employers who never have three people at once but do have one steady full-timer. Michigan offers no general opt-out.

How long does a Michigan employer have to report a new hire?

Twenty days from the date of hire, filed with the Michigan New Hire Operations Center. It is separate from the quarterly wage and tax report submitted to the Unemployment Insurance Agency, and satisfying one does not satisfy the other. Some payroll platforms file it automatically and some leave it with the employer, which is worth establishing rather than assuming.

Does Michigan have reciprocal tax agreements with other states?

Yes, with Wisconsin, Indiana, Kentucky, Minnesota, Illinois, and Ohio. An employee working in Michigan but living in one of those states is generally exempt from Michigan withholding, with tax going to their home state instead, provided the correct certificate is on file. Reciprocity covers state income tax only and does not remove a city income tax obligation.

How much does payroll software cost for a Michigan small business?

At 10 employees, published July 2026 rates run roughly $87 for Patriot Full Service, $89 for Paychex Essentials, $95 for Square, and $109 for OnPay or Gusto Simple. At 50 employees the same plans land between $287 and $349. ADP RUN and Paylocity quote individually. See our comparison of payroll software for small business for the wider market.