Michigan Payroll: Employer Tax and Software Guide

If another founder asked me what to watch in Michigan payroll, I would point past the flat state rate to the cities. 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.

Start with the easy part. 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 24 separate city income taxes. Each has its own rate pair and its own return, and most also require a separate registration. Detroit alone charges residents 2.4 percent of their income, the highest rate of any Michigan city.

City tax jurisdiction 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. The city layer is where Michigan payroll actually goes wrong, and it is the thing worth checking a provider on.

What Michigan actually taxes

Four layers apply: state income tax, city income tax, unemployment insurance, and workers compensation. The difference between the second layer and everything else is the entire story of Michigan payroll administration. The table's fifth row shows what Michigan does not charge: there is no state contribution for disability or paid family leave.

State withholding uses Form MI-W4 as the employee certificate. Bonuses paid separately from regular wages are withheld at the same flat 4.25 percent with no exemption adjustment, per the 2026 Michigan withholding guide. Every Michigan employer that withholds federal income tax must register to withhold Michigan tax too, as must an out-of-state employer with employees working in Michigan.

Michigan withholding tax rides on the sales tax return

Michigan runs no standalone withholding return, and that surprises new employers more than the rate does. Form 5080 is a combined Sales, Use and Withholding return filed through Michigan Treasury Online, so the tax you took off paychecks is reported in the same document as any sales and use tax you owe.

The Department of Treasury assigns the filing frequency, which can be monthly, quarterly, or annual, and determines it each year rather than leaving it to you. Form 5080 is due on the 20th of the month following the period it covers. Every filer also submits an annual return, Form 5081, by February 28 regardless of the frequency they were assigned.

The 24-city layer

Twenty-four Michigan cities levy their own income tax on top of the state rate. 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.

Act 284, the City Income Tax Act, caps every city's non-resident rate at half its resident rate, and each taxing city sets it at exactly half, 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 city that runs its own tax, withholds at the correct rate, and files that city's return on its own schedule.

Detroit is the exception on registration. The Department of Treasury administers the Detroit tax, so a business registered for Michigan taxes needs no separate Detroit withholding registration, although Detroit returns are still filed separately from the state return. Treasury also takes over the Flint tax from January 1, 2027.

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, every taxing city means a separate return and, outside Detroit, usually a separate registration. A provider either absorbs that workload or hands it 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 (UIA) 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 in the average state, because the cost of a charged claim reaches your rate more directly.

Minimum wage and earned sick time

Michigan's minimum wage and its earned sick time law both changed in 2025 and are both 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

Michigan's standard minimum wage reaches $15.00 an hour on January 1, 2027, with inflation adjustments from 2028, and that schedule comes from Senate Bill 8, signed on February 21, 2025. The increase to $13.73 took effect on January 1, 2026.

The tipped and under-18 rates are set as percentages of the standard rate, so they rise with it. The minimum wage FAQ from the Department of Labor and Economic Opportunity puts the tipped cash wage at 42 percent of the standard rate from January 1, 2027, rising two points a year to 50 percent in 2031.

The tip credit is available only where reported tips actually bring the employee to the full minimum, and the employer makes up any shortfall. The training wage is the exception to the percentage rule: it stays at $4.25 for newly hired workers under 20 during their first 90 calendar days.

Earned sick time now applies to everyone

The Earned Sick Time Act replaced the Paid Medical Leave Act and reached the smallest employers only on October 1, 2025, which is why a lot of Michigan small business guidance is still wrong about it.

Employers may either let sick time accrue at one hour per thirty hours worked or frontload the annual cap at the start of the benefit year, as the earned sick time FAQ from the state labor department explains. 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 Michigan sick time guidance published in late 2024 describes requirements that were subsequently changed.

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

Beyond the tax filings, a Michigan employer carries two more obligations: workers compensation coverage and new hire reporting. The notable rule Michigan does not impose is pay transparency, and that gap matters as soon as you hire across state lines.

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 Hires Operation Center within 20 calendar days of the date of hire or rehire, according to the Administration for Children and Families. The duty sits under federal law and Michigan statute together, and it supports child support enforcement rather than tax administration.

The new hire report 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 a common reporting error in the state.

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 payroll plan at $49 per month plus $6 per employee, with no tiers: federal, state, and local tax filings, multi-state payroll, and state new hire reporting are all in the base plan, and pay runs are unlimited. HR tools and time tracking are paid add-ons.

OnPay also publishes Michigan payroll guidance that links to Treasury registration, a reasonable proxy for whether a vendor treats the state as more than a line in a tax table.

Gusto

A common first payroll purchase for US small businesses, with automatic tax filing, published pricing, and onboarding built into the same account, a strong combination among payroll-first platforms. Simple runs $49 per month plus $6 per employee after a base increase during 2025, and Gusto says it files federal, state, and local payroll tax forms on your behalf, which, by Gusto's account, covers the Michigan state and city layers.

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 lowest-cost full-service plan on this list at every headcount, 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. With 24 city income taxes in the state, 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 costs $95 a month at 10 employees, second only to Patriot on this list. For a Detroit or Ann Arbor restaurant already running Square point of sale (POS), timecards and tips flow into payroll with no integration work.

Michigan's tipped cash wage, $6.30 from January 1, 2027 ($5.49 in 2026), 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. Its Small Business plan is $29 per month plus $7 per employee, with a flat $9.99 monthly fee that covers every additional state rather than charging state by state.

QuickBooks Workforce Payroll

Workforce Payroll, the renamed Core plan, is $50 per month plus $7 per employee, and the argument for it is unchanged: if your books live in QuickBooks Online, payroll reaches the general ledger (GL) without an export.

For a Michigan employer with city tax exposure, note that Intuit, the company behind QuickBooks, lists certain local taxes on Workforce Premium and Elite only. Confirm coverage for your specific cities before assuming the state-level filing extends to them.

ADP RUN

ADP RUN puts a local tax compliance engine behind every package: each one calculates, files, deposits, and reconciles payroll taxes. For an employer with staff spread across Detroit, its suburbs, and a taxing city elsewhere, handing off those city filings is the specific problem worth paying to remove.

The cost is opacity. ADP does not publish RUN pricing: all four packages are quoted individually. ADP does say that you do not have to sign a contract and can end services at any time, and that it pays the resulting fines or penalties if it makes a tax filing error.

Paychex Flex

Paychex competes on service rather than software, and it publishes no rates: every payroll package runs on Paychex Flex and is priced on request. It also publishes employer guidance on the Michigan Earned Sick Time Act, amended in February 2025, which is exactly the kind of changed rule where having someone to call has real value.

Paylocity

Paylocity sits between small-business payroll and full human capital management (HCM) software, 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 says it calculates and files federal, state, and local payroll taxes with the right agencies.

Rippling's pricing page is a quote form. Its small-business page starts payroll plans at $8 per user a month plus a $40 monthly base fee, and its blog prices the core platform at $8 per employee a month and the payroll module at another $8 billed annually, so configured quotes can run higher.

What each provider actually costs a Michigan employer

At 10 employees, published rates run from $87 a month on Patriot to $120 on QuickBooks, and the table below also shows 25 and 50 employees, plus a column for what a second state adds. Michigan borders Ohio, Indiana, and Wisconsin, so for an employer near one of those lines, multi-state pricing can reorder this list.

Patriot is the interesting row. It is the cheapest full-service option at every headcount, and it files local taxes as part of the plan. In a state with 24 city income taxes, that is a combination the other budget platforms do not match: SurePayroll charges extra for local taxes, and Square does not spell them out.

If your staff all work outside a taxing city, Patriot's local filing advantage disappears and the comparison becomes a plain price question, in which Patriot and Square lead.

Choosing a payroll provider for Michigan

Choose on city coverage first and price second. Ask every provider on your shortlist these five questions before you sign.

Before you choose

FirstHR is an onboarding and HR platform, not a payroll provider. Payroll runs, payroll tax filing, and benefits administration come from the providers above, so if the city filing question is what brought you here, one of them is the answer.

What we handle is the document layer feeding payroll: onboarding workflows that put the federal I-9 and W-4 and the Michigan MI-W4 on the first-day task list for each new hire, e-signatures on offer letters, employee records, and document management for US small businesses at a flat $98 a month for up to 10 people or $198 for 11 to 50.

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 nearby 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.

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. Twenty-four cities levy an additional income tax withheld and remitted separately by the employer. Apart from a one-year cut to 4.05 percent for 2023, the rate has held at 4.25 percent, 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?

Twenty-four, at four rate levels. Detroit is highest at 2.4 percent for residents and 1.2 percent for non-residents, then Highland Park at 2.0 and 1.0 percent. Grand Rapids and Saginaw sit at 1.5 percent and 0.75 percent, and around 20 remaining cities at 1.0 percent and 0.5 percent. Under Act 284 no non-resident rate can exceed half the resident rate.

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. A hybrid employee whose home office sits inside a taxing city can therefore trigger withholding for that city, even if your business has no office there. An employer located in a taxing city also withholds for everyone working within it and for its residents wherever they work. 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 their first two years of liability, except in construction, where the new employer rate is the industry average: 5.0 percent for 2026. 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. Qualified employers pay on $9,000 instead in years when the Trust Fund has $2.5 billion or more on June 30 and is expected to stay above it through the next quarter. Delinquent employers pay on $9,500 regardless.

What is the Michigan minimum wage?

$15.00 an hour starting January 1, 2027 ($13.73 in 2026), with yearly inflation adjustments from 2028. From that date, tipped employees can be paid a cash wage of $6.30, which is 42 percent of the standard rate ($5.49, or 40 percent, in 2026), and workers aged 16 and 17 can be paid $12.75 ($11.67 in 2026). Newly hired employees aged 16 to 19 can be paid a $4.25 training wage during their first 90 calendar days.

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

Michigan's paid sick leave law, which 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?

Within 20 calendar days of the hire or rehire date, reported to the Michigan New Hires Operation 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. A resident of one of those states who works in Michigan is generally exempt from Michigan withholding as long as the correct certificate is on file, and tax goes to the home state instead. 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 October 2026 rates run $87 for Patriot Full Service, $95 for Square, $99 for SurePayroll, $109 for OnPay or Gusto Simple, and $120 for QuickBooks Workforce Payroll. At 50 employees the same plans land between $287 and $400. ADP RUN, Paychex Flex, and Paylocity quote individually.