Key figures
Michigan advisory
2026, with sources
- R&D credit
- RefundableAvailable to CIT filers and withholding tax filers, for tax years beginning on or after Jan 1, 2025.
- R&D credit basis
- MQREs over baseMichigan qualified research expenses above a base amount, during the calendar year claimed.
- Section 174 for Michigan
- AmortizedDomestic R&E is amortized over five years for Michigan income taxes.
A refundable R&D credit, and a decoupled Section 174
Michigan brought back a research and development credit for tax years beginning on or after January 1, 2025, under Public Acts 186 and 187 of 2024. It is computed on Michigan qualified research expenses above a base amount, is available to CIT filers and to flow-through businesses through withholding tax, and is refundable — so a loss-making company can receive it as cash. Treasury caps the credit by business size and in aggregate statewide, prorating claims when they exceed the cap; Revenue Administrative Bulletin 2026-4 sets out the mechanics.
The same companies need to know that Michigan did not follow the federal return to immediate R&D expensing. The credit and the deduction move in opposite directions: Michigan pays you for research while taxing more of it in the year it’s spent.
Remote hires and city taxes
Twenty-four Michigan cities levy income taxes. Detroit’s — administered by the Michigan Department of Treasury — taxes residents at 2.4% and nonresidents working in the city at 1.2%, and also has its own corporate income tax. The other 23 cities, including Grand Rapids, Lansing, Flint and Saginaw, administer their own. A company with one employee who lives or works in one of those cities can owe city withholding and a city return.
At the state level, Michigan has reciprocity with Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin, so an employee commuting in from any of them is taxed by their home state. Reciprocity doesn’t extend to city taxes.
Where founders go wrong in Michigan
Most Michigan surprises are about divergence from the federal return and about cities.
- Copying the federal Section 174A deduction onto the Michigan return.
- Missing city withholding because the employee lives in a taxing city the company has never heard of.
- Assuming ESTA doesn’t apply to a three-person company; it applies to every Michigan employer.
- Not filing a CIT return in a loss year, and so not establishing the Michigan business loss carryforward.
- Leaving the refundable R&D credit unclaimed because the company has no Michigan tax to offset.
The federal baseline
This page covers what Michigan adds. The federal rules underneath it apply here too.
Common questions
Can a pre-revenue startup get cash from Michigan’s R&D credit?
Yes, which is unusual. Michigan’s R&D credit, available for tax years beginning on or after January 1, 2025, is refundable, and it can be claimed by CIT filers and by flow-through businesses against withholding tax. The credit is computed on Michigan qualified research expenses above a base amount; Treasury’s Revenue Administrative Bulletin 2026-4 explains the calculation, and the claim is filed through Michigan Treasury Online.
Does Michigan follow the federal QSBS exclusion?
Michigan’s individual income tax starts from federal adjusted gross income, and Treasury’s February 2026 decoupling notice does not list Section 1202 among the provisions Michigan adjusts. Founders should confirm with their own preparer, but the default is that federal QSBS treatment flows through.
Advisory next door
- INIndiana advisoryIndiana offers a nonrefundable research credit and fixed-date conformity that the legislature updates selectively; the remote-hire question is always which county.
- OHOhio advisoryOhio’s 7% R&D credit offsets only the CAT, which most startups no longer owe; the advice that matters is about cities, remote hires and the state-run workers’ comp fund.
- WIWisconsin advisoryWisconsin’s research credit is 25% refundable, and its qualified Wisconsin business exclusion can make a founder’s long-term gain tax-free in Wisconsin if the company registers in time.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- SAFEsHow to account for SAFEs on your balance sheetA SAFE is cash today and shares later. Why it usually sits with liabilities, how the cap and discount set conversion, and what to book at the priced round.
- RunwayBurn rate and runway: how to calculate them correctlyGross burn, net burn and months of runway, done the way an investor checks them: from cash, averaged, and with the hires you’ve already committed to.
More of the Michigan guide
- AccountingAccounting and state tax in MichiganCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in MichiganSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in MichiganPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in MichiganWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in MichiganRegistering to do business, annual reports, franchise tax and the filing calendar
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.