Michigan Tax Preparer Requirements 2025-2026

Michigan is one of the most accessible states in which to start a tax preparation business. No state license is required, no state exam, and no state-mandated continuing education for non-credentialed paid preparers. What Michigan does require is a federal PTIN plus a signature on every Michigan individual income tax return you prepare for compensation, under MCL 205.4a (the Taxpayer Protection Act, effective January 1, 2021). In exchange, you gain entry into one of the most technically complex state tax environments in the Midwest: a three-tier pension subtraction system that rewards preparers who understand it, a 4.25% flat rate that is simple on its face but complicated by OBBBA decoupling, city income taxes in 24 Michigan cities, a 30% Michigan EITC, and a Homestead Property Tax Credit claimed by roughly 1.1 million households per year. This guide covers every requirement a Michigan paid preparer needs to know for TY2025 returns filed in 2026.

Does Michigan Require a State License?

Michigan does NOT require non-credentialed paid tax preparers to obtain a state license, register with any state agency, or pass a state exam. The Michigan Department of Treasury has no authority over non-credentialed tax preparers in a licensing capacity. Any individual who obtains a federal PTIN may legally prepare Michigan individual income tax returns for compensation.

Michigan has never enacted a state-level registered tax return preparer (RTRP) program analogous to Oregon's or California's CTEC registration. There is no Michigan equivalent of New York's tax preparer registration requirement. The federal PTIN and the MCL 205.4a signing requirement are the only mandatory compliance obligations specific to non-credentialed paid preparers in Michigan.

MCL 205.4a: The Michigan PTIN Signing Requirement

This is the single most important Michigan-specific compliance rule for non-credentialed preparers. Public Act 77 of 2020 added MCL 205.4a to the Revenue Act, effective January 1, 2021:

• Every paid tax preparer must sign every Michigan individual income tax return they prepare for compensation.
• Every paid tax preparer must include their federal PTIN on every Michigan individual income tax return they prepare.
• Penalty for failure: $50 per return, up to a $25,000 calendar-year cap per preparer.
• Exempt from this requirement: licensed CPAs (and their firms and employees) and volunteer preparers through IRS-sponsored tax assistance organizations (VITA/TCE).

The MCL 205.4a requirement is not a license. It does not require any application, fee, or state approval. It is a signing and identification rule: sign the return, put your PTIN on it, every time. A preparer who completes 500 Michigan individual returns without signing them faces a maximum penalty of $25,000 for that calendar year.

PTIN and EFIN: Federal Requirements Apply

PTIN 2026 fee: $18.75 ($10.00 IRS base fee plus $8.75 third-party contractor fee). Renew annually by December 31 at irs.gov/ptin. Renewal takes approximately 15 minutes online. The PTIN fee is $18.75 for 2026, reduced from $19.75 for 2021-2025.

EFIN (Electronic Filing Identification Number) is required if you plan to e-file Michigan returns. Michigan does not issue a separate state EFIN. Once approved for IRS e-file, the IRS automatically forwards your information to Michigan, enrolling you in the Michigan e-file program. No separate Michigan application is needed.

Michigan E-File Mandate

Michigan's e-file mandate triggers at 11 or more Michigan individual income tax or fiduciary returns per year. If you prepare 11 or more eligible Michigan returns, you must e-file all of them. The threshold is lower than the federal 11-return trigger (which also applies to Michigan individual returns by cross-reference). Michigan's automatic enrollment through the IRS program means there is no separate state application once you are IRS-authorized.

Annual Filing Season Program (AFSP): Voluntary but Valuable

Michigan does not mandate the IRS Annual Filing Season Program, but it is the practical credential that differentiates non-credentialed Michigan preparers. Completion requires 18 hours of IRS-approved CE (6-hour Annual Federal Tax Refresher, 10 hours of federal tax law, 2 hours of ethics) and earns a Record of Completion plus limited representation rights before the IRS. No Michigan CE requirement applies to non-credentialed preparers independently of the AFSP.

FTC Safeguards Rule (WISP)

Every paid tax preparer, including solo practitioners, must maintain a Written Information Security Plan (WISP) under the Gramm-Leach-Bliley Act (15 U.S.C. 6801(b)). Required elements include a designated responsible individual, multi-factor authentication (MFA) for all systems containing customer information, a risk assessment, and an incident response plan. FTC penalties reach up to $46,517 per violation per day. A free WISP template is available at IRS Publication 5708.

Michigan Individual Income Tax for TY2025

The 4.25% Flat Rate

Michigan taxes all taxable income at a single flat rate: 4.25% for TY2025. There are no brackets, no phase-outs based on income level, and no marriage penalty in the rate structure itself.

Note on recent rate history: The TY2023 rate was temporarily reduced to 4.05% due to a General Fund revenue trigger under Proposal A. That trigger applied for one year only. The rate reverted to 4.25% for TY2024 and the Michigan Treasury confirmed in May 2025 (based on FY2024 ACFR analysis) that no reduction mechanism applies to TY2025. The rate is 4.25% for TY2025 returns filed in 2026.

How Michigan Taxable Income Is Computed

Michigan does not have a general standard deduction comparable to the federal standard deduction. Michigan taxable income starts from federal AGI and then applies Michigan-specific additions and subtractions:

• Michigan AGI = Federal AGI plus Michigan additions (bonus depreciation addback, OBBBA addbacks, etc.) minus Michigan subtractions (retirement income, military pay, Social Security, etc.)
• Michigan Taxable Income = Michigan AGI minus personal exemptions
• Michigan Tax = Michigan Taxable Income x 4.25%

Personal Exemptions (TY2025)

Michigan increased its personal exemption to $5,800 per person for TY2025 (up from $5,600 in TY2024). The exemption applies to the taxpayer, the spouse (if MFJ), and each dependent. Additional exemptions apply in specific circumstances:

• $5,800 per person (taxpayer, spouse, each qualifying dependent)
• $1,500 if the taxpayer can be claimed as a dependent by another person
• $3,400 additional exemption per qualifying household member who is deaf, paraplegic, quadriplegic, hemiplegic, totally and permanently disabled, or blind
• $500 additional exemption for each disabled veteran in the household

These exemptions are set by the legislature, not indexed to inflation by formula. A family of four (two adults, two dependents) reduces Michigan taxable income by $23,200 in personal exemptions alone before any retirement subtractions.

Capital Gains: No Preferential Rate

Michigan taxes capital gains as ordinary income at the flat 4.25% rate. There is no long-term capital gains preference at the state level. A client with $200,000 in long-term capital gains owes the same 4.25% Michigan rate as on wages. This is critical for auto industry salaried employees with RSU vestings and stock option exercises at Ford, GM, Stellantis, and Tier 1 suppliers.

Michigan's Three-Tier Pension System: The Most Important Planning Topic

Michigan's retirement income subtraction is the single most complex element of the Michigan individual income tax return. It determines whether a retiree pays significant state tax on pension and IRA income or pays very little. The system is governed by the taxpayer's birth year and is calculated on Form 4884 (Pension Schedule). Preparers who understand this system can deliver real, measurable savings. Preparers who get it wrong expose clients to underpayment or overpayment.

One rule applies to every tier without exception: Social Security benefits are fully exempt from Michigan income tax for all taxpayers, at all ages, at all income levels. There is no income phase-out and no dollar cap. This applies to retirement, SSDI, and survivor benefits.

Tier 1: Born Before January 1, 1946

Tier 1 taxpayers receive the most favorable treatment. For TY2025:

• Public pensions (federal, state, and local government sources): Fully exempt, no dollar cap.
• Private retirement income (IRA, 401k, private pensions): Deductible up to $65,897 single or married filing separately / $131,794 married filing jointly (TY2025 inflation-adjusted maximum).

Note: Any public pension deduction claimed reduces the available private retirement deduction dollar-for-dollar. Tier 1 filers with mixed public and private pension income should calculate the interaction carefully on Form 4884.

Tier 2: Born January 1, 1946 through December 31, 1952

Tier 2 taxpayers choose the more beneficial of two options for TY2025:

The Phase-In Method deduction covers combined public and private retirement benefits and is higher for most Tier 2 retirees with substantial retirement income. Always compute both options and elect the more favorable. At age 67, the Tier 2 deduction may be applied to all income (not restricted to retirement income), which dramatically increases the benefit for Tier 2 taxpayers who reach that threshold.

Tier 3: Born January 1, 1953 or Later

Tier 3 taxpayers receive no retirement income subtraction before age 67, except Social Security (which is always fully exempt at any age in any tier). At age 67 and older, they choose the more beneficial of two options:

• Phase-In Method: Deduct combined qualifying retirement benefits up to $49,423 single / $98,846 joint (same 75% of the inflation-adjusted maximum as Tier 2).
• Michigan Standard Deduction: Deduct $20,000 single / $40,000 joint against all income (not restricted to retirement income). For TY2025, this deduction must be reduced by any Social Security, railroad retirement, military retirement, or Michigan National Guard retirement deduction taken on the same return.

2026 Convergence: All Tiers Move Higher

For TY2026 (Year 4 of the PA 4 of 2023 phase-in at 100%), all retirees regardless of birth year may deduct combined retirement and pension benefits up to $67,610 single / $135,220 joint. Tier 1's unlimited public pension exemption is preserved in addition to this floor. For Tier 3 filers aged 67 and older, the Social Security offset against the Michigan Standard Deduction is also eliminated beginning TY2026, allowing clients to stack both benefits for the first time.

Military Retirement: Fully Exempt

All military retirement pay is fully exempt from Michigan individual income tax. There is no dollar cap and no age requirement. This exemption applies to retirement pay from all branches (Army, Navy, Air Force, Marines, Coast Guard, Space Force) and covers active-duty retirement pay, National Guard full-time active duty retirement, and SBP (Survivor Benefit Plan) payments. VA disability compensation is also not taxable in Michigan. For preparers serving Selfridge ANGB (Harrison Township, Macomb County) or the Camp Grayling area, this exemption eliminates state tax on the largest component of most military retiree income.

Active duty military pay is also fully exempt from Michigan income tax while the service member is on active duty, regardless of where the income is earned.

Michigan OBBBA Conformity: What Changed and What Did Not (Critical for TY2025)

Governor Whitmer signed Public Act 24 of 2025 on October 7, 2025. PA 24 advanced Michigan's IRC conformity date from January 1, 2018 to January 1, 2025 (effective for tax years beginning after December 31, 2024). Michigan uses a fixed-date (static) conformity model: it does not automatically adopt future federal changes.

At the same time, Michigan decoupled from five specific OBBBA provisions to protect an estimated $2 billion in state revenue over five fiscal years. Every Michigan preparer with business clients needs to understand these decoupling items. They require recalculations and addbacks that do not appear on the federal return.

Tips and Overtime: TY2026-2028 ONLY, NOT TY2025

Michigan's tips and overtime deductions are available only for tax years beginning after December 31, 2025 (TY2026, TY2027, and TY2028). The deduction expires after TY2028. For TY2026 through TY2028, Michigan taxpayers may deduct from Michigan AGI the same qualified overtime and qualified tips amounts deducted on their federal return. Nonresidents may only deduct the portion attributable to services performed in Michigan.

Section 168(k) Bonus Depreciation: Phase-Out Continues in Michigan

Michigan does NOT conform to OBBBA's restoration of 100% bonus depreciation. For Michigan purposes, preparers must use the pre-OBBBA phase-out schedule:

• TY2025: 40% bonus depreciation (Michigan)
• TY2026: 20% bonus depreciation (Michigan)
• TY2027 and beyond: 0% bonus depreciation (Michigan)

Federal returns claiming 100% bonus depreciation under the OBBBA require a Michigan addback for the difference. A client who deducts $100,000 in bonus depreciation federally must add back $60,000 on the Michigan return for TY2025 (100% federal minus 40% Michigan allowance).

Section 179: Michigan Retains Pre-OBBBA Limits

Michigan retains the pre-OBBBA Section 179 limits for TY2025:

• Maximum Section 179 deduction (Michigan): $1,250,000
• Phase-out threshold (Michigan): $3,130,000

If the federal return claims a Section 179 deduction exceeding Michigan's $1,250,000 limit, or if the federal phase-out calculation differs from Michigan's $3,130,000 threshold, a Michigan addback is required. This issue primarily affects larger S-corps, partnerships, and self-employed clients with significant asset purchases.

Section 174A Research and Experimental Expenditures

Michigan decoupled from OBBBA's Section 174A, which restored immediate deductibility for domestic research and experimental (R&E) expenditures. Michigan retains the pre-OBBBA capitalization and amortization rules: 5-year amortization for domestic R&E, 15-year for foreign R&E. This primarily affects C corporations, engineering firms, and pass-through entities with active R&D programs. Preparers with automotive or technology industry clients should flag this item.

Section 163(j) Business Interest Limitation: EBIT, Not EBITDA

Michigan continues to use the more restrictive EBIT (earnings before interest and taxes) calculation for the Section 163(j) business interest expense limitation. The OBBBA restored the more favorable EBITDA (earnings before interest, taxes, depreciation, and amortization) calculation at the federal level. Michigan's EBIT standard produces a lower limitation ceiling and may require a Michigan addback for business interest deductions that are allowable federally under EBITDA but not under Michigan's EBIT standard.

Section 168(n) Qualified Production Property

Michigan decoupled from OBBBA's Section 168(n), which provides special depreciation for qualified production property. Any Section 168(n) deduction taken on the federal return must be added back on the Michigan return.

Michigan EITC and Homestead Property Tax Credit

Michigan Earned Income Tax Credit: 30% of Federal EITC

Michigan's EITC is worth 30% of the federal Earned Income Tax Credit for TY2025 (PA 4 of 2023, retroactive to TY2022, increased from the prior 6% rate). The Michigan EITC is fully refundable: if the credit exceeds Michigan tax owed, the balance is paid as a refund.

Example: A family qualifies for a $3,000 federal EITC. Their Michigan EITC is $900 (30% of $3,000). If their Michigan income tax liability is $400, they receive a $500 refund from the Michigan EITC. Approximately 665,000 Michigan households received the Michigan EITC in TY2024 filings, averaging $890 per household.

Preparers serving auto workers with moderate income, service industry workers, agricultural workers, and Detroit-area clients should screen every eligible client for the Michigan EITC. The 30% rate makes it one of the most generous state EITC matches in the country.

Homestead Property Tax Credit (MI-1040CR)

The Michigan Homestead Property Tax Credit is a refundable credit for Michigan residents whose property tax burden is high relative to income. Approximately 1.1 million Michigan households claim it each year, averaging $820 per claimant.

Eligibility for TY2025:

• Michigan resident for at least 6 months during the tax year
• Homestead in Michigan
• Total household resources (THR) of $71,500 or less
• If homeowner: taxable value of property must be $165,400 or less (except unoccupied farmland)

Renters qualify: Renters may claim 23% of annual rent as a property tax proxy in the credit calculation. Maximum credit: $1,900 for most claimants. The credit is fully refundable, so eligible households who owe zero Michigan income tax may still receive the refund. Proactively screen all clients who rent or own modest homes and have THR at or under $71,500.

Michigan City Income Taxes: 24 Cities

Michigan is one of the few states where local income taxes materially affect individual returns. Twenty-four Michigan cities impose a city income tax under the Uniform City Income Tax Ordinance. City income tax returns are filed separately from the state MI-1040 and are required for residents of the city and for nonresidents who earn income working in the city.

Detroit City Income Tax

Detroit's city income tax is the highest-volume city return in Michigan:

• Detroit residents: 2.4% on all taxable income
• Nonresidents working in Detroit: 1.2% on income earned within Detroit city limits

Preparers with Detroit-area clients must determine: (1) whether the client lives in Detroit (resident rate) or commutes into Detroit from a suburb (nonresident rate); (2) what portion of wages were earned within Detroit city limits vs. worked remotely or at other locations; and (3) whether the employer properly withheld city tax. A UAW worker who commutes to a Detroit assembly plant but lives in Macomb County owes the 1.2% nonresident rate on wages earned at the Detroit facility.

Other Michigan Cities with Income Tax

The 24-city roster includes major Michigan employers and population centers. Representative rates:

City income tax returns are filed directly with the city (not the state). Most cities use a standard form based on the Uniform City Income Tax Ordinance, but forms and filing procedures vary by city. Preparers should confirm software support for all city returns relevant to their client base. Not all professional tax software packages include all 24 Michigan city returns out of the box.

Michigan Flow-Through Entity Tax (FTET): The SALT Cap Workaround

Michigan's Flow-Through Entity Tax (FTET) allows S corporations, partnerships, and LLCs taxed as partnerships to elect to pay Michigan income tax at the entity level rather than passing all income to individual owners for state-level taxation. The FTET rate is 4.25% (matching the individual income tax rate).

The strategic benefit: entity-level state taxes are fully deductible on the federal return as a business expense, bypassing the $10,000 federal SALT deduction cap that limits individual state tax deductibility. A Michigan S corporation with $500,000 in pass-through income pays $21,250 in Michigan FTET at the entity level. That $21,250 is deductible federally as a business expense, reducing federal taxable income regardless of the individual owner's SALT exposure.

Members receive a refundable Michigan credit equal to the FTET paid. The election is annual and voluntary. Preparers with S-corp and partnership clients should evaluate the FTET election for every TY2025 business return where federal SALT exposure is a factor.

High-Value Client Niches in Michigan

Automotive and UAW: Michigan's Largest Employer Niche

Michigan's auto industry is one of the most complex W-2 environments in the country. Non-credentialed preparers who understand these issues can serve clients that larger firms overlook:

• UAW COLA and profit sharing: Cost-of-living adjustments and profit-sharing bonuses from Ford, GM, and Stellantis are ordinary W-2 wages, fully taxable at the 4.25% Michigan flat rate. Profit-sharing amounts can reach $10,000 or more per worker in strong years, creating a meaningful Michigan tax impact. Confirm that employer withholding covered the Michigan liability; COLA is sometimes reported mid-year with lagged withholding.
• RSUs and stock options (salaried/management): RSU vesting creates ordinary income in Box 1 of the W-2. Stock sales create capital gains taxed at 4.25% (no preferential Michigan rate). Preparers handling salaried employees at Ford, GM, Stellantis, or Tier 1 suppliers (BorgWarner, Aptiv, Lear, Dana) should expect equity compensation and Forms 3921/3922.
• City income tax overlay: Workers at Detroit, Flint, Lansing, or Saginaw plants may owe city income tax in addition to the state return. A Macomb County resident commuting to a Detroit assembly plant owes the 1.2% nonresident Detroit rate on wages earned at that location.
• Section 179 client relevance: For TY2025 the tips/overtime OBBBA deduction requires a Michigan addback. Auto workers who took a federal overtime deduction will see a Michigan addback adjustment on their MI-1040.

Michigan Retirees: Three-Tier Planning Is the Differentiator

Preparers who master the three-tier pension system can deliver retirement tax savings that most generalist preparers miss. The system rewards thorough fact-gathering: birth date, pension source (public vs. private), age at filing, and whether the client is approaching or has passed age 67. A Tier 1 government retiree with $80,000 in public pension and $30,000 in Social Security may owe zero Michigan income tax. A Tier 3 retiree who just turned 67 needs a calculation comparing the Phase-In Method against the Michigan Standard Deduction with the SS offset factored in.

The 2026 convergence (all tiers moving to the full $67,610/$135,220 cap, with the SS offset eliminated for Tier 3) creates planning conversations worth having with clients now, before they file TY2025 returns.

Military: Selfridge ANGB and Camp Grayling

Michigan is one of the most favorable states for military retirees: military retirement pay is fully exempt (no cap), active duty pay is fully exempt, and Social Security is fully exempt. A military retiree at Selfridge Air National Guard Base in Harrison Township with $60,000 in military retirement pay, $24,000 in Social Security, and $30,000 in part-time consulting income owes Michigan tax only on the $30,000 consulting income (minus personal exemptions). That is a compelling value proposition for a preparer who can explain it clearly.

Upper Peninsula: Underserved, Multi-State, and Seasonal

The Upper Peninsula is one of the most underserved tax markets in Michigan. The UP economy mixes tourism, seasonal hospitality, short-term rental income, and limited natural resource industries. Key issues: seasonal W-2s from multiple employers, tip income, short-term rental Schedule E, and Wisconsin commuters who split working time between states. Multi-state returns (Michigan plus Wisconsin) are common for UP residents near the Menominee River border. Remote preparer services have significant penetration opportunity in this market.

Agriculture: Tart Cherries, Fruit, and Farm Income

Michigan is the country's top tart cherry producer (northwest Lower Peninsula: Traverse City, Leelanau County, Benzie County) and has significant fruit, wine grape, and vegetable production in southwest Michigan. Farm clients bring Schedule F self-employment income, farmer estimated tax rules (the one-third-of-year rule), farm income averaging via Schedule J, USDA commodity support payments, and crop insurance proceeds. Under Michigan's Section 179 decoupling, farm equipment purchases that qualify for full federal Section 179 may be limited on the Michigan return to the $1,250,000 cap. In southwest Michigan, preparers serving fruit harvest operations may encounter migrant or seasonal agricultural workers with ITIN rather than SSN situations.

Starting a Tax Preparation Business in Michigan

LLC Formation: Among the Lowest Cost in the Country

Michigan LLCs are registered through the Department of Licensing and Regulatory Affairs (LARA).

• Articles of Organization filing fee: $50 (one of the lowest in the country)
• Annual Report fee: $25 per year to maintain good standing
• Expedited processing: Available for additional fees up to $1,000 for same-day processing
• First-year cost (DIY): $75 (Articles plus first annual report); under $300 with a basic registered agent service

Michigan Business Taxes for Preparers

The Michigan Business Tax (MBT) was largely repealed effective January 1, 2012. Most independent tax preparers operating as sole proprietors, single-member LLCs, S-corps, or partnerships are not subject to the MBT. The Corporate Income Tax (CIT) at 6% applies only to entities taxed as C corporations. A sole proprietor or single-member LLC reports self-employment income on Schedule C federally and on Michigan Schedule 1; there is no separate Michigan self-employment tax.

Tax preparation services are not subject to Michigan sales tax. Michigan sales tax applies to tangible personal property and a limited enumerated list of services. Professional tax preparation services are not on that list. If you sell tangible products (software on physical media, printed forms), those sales may be subject to the 6% Michigan sales tax.

FTET Election for Your Own Practice

If you operate your tax preparation business as an S-corp or partnership (rather than a sole proprietor), evaluate the Michigan FTET election for your own entity. The election allows you to pay Michigan income tax at the entity level (4.25%), deduct that amount as a federal business expense, and claim a refundable Michigan credit as the owner. For a practice with meaningful net income, this can reduce your effective federal tax cost on state income taxes significantly.

Michigan Tax Forms Reference

Frequently Asked Questions