Michigan Business Tax Requirements for LLCs

How Your LLC Will Be Taxed

In this guide, we’ll cover all the main Michigan business taxes required, including state income and sales tax, as well as self-employment, payroll and federal taxes. The profits of an LLC aren’t taxed at the business level like C Corporations. Instead, taxes are applied as follows:

Items 1, 2 and 3 fall under pass-through taxation for any LLC owners, managers or members who receive profits from the business. Profits are reported on federal and state personal tax returns.

State Taxes for LLCs

There are three main types of state tax you’re required to pay to the Michigan Department of Treasury: income, sales and franchise (business tax).

Michigan Income Tax

As a business owner, you’ll need to pay Michigan income tax on any money you pay yourself. These earnings flow through to your personal tax return. You’ll be taxed at the standard rates for Michigan, and you’ll get to apply regular allowances and deductions.

Any salaried employees will also need to pay state income tax.

The Michigan state income tax rate is 4.25% of net income.

Michigan Sales Tax

If you sell physical products or certain types of services, you may need to collect sales tax and then pay it to the Michigan Department of Treasury. Sales tax is collected at the point of purchase and varies depending on the region, county or city where your business is located.

Most states don’t levy sales tax on goods that are considered necessities, such as food, medications, clothing or gas.

The flat statewide Michigan sales rate is 6%. There are no local sales taxes.

Use our sales tax calculator to determine how much you'll need to pay, but also check with your accountant and the Department of Treasury to confirm whether your business is required to collect Michigan sales tax and, to ensure you pay the correct amount.

Michigan Business Tax

Despite the way the name sounds, this is a specific tax in the state, not just a general business tax. Some states levy a tax on certain businesses for the right to exist as a legal entity and do business in the state. Other states call it a franchise tax, transaction privilege tax or privilege tax. Here, it's the Michigan business tax.

Per the state: "The tax is imposed on the business income of all taxpayers (not just corporations) with business activity in Michigan, subject to the limitations of federal law."

Talk to your accountant or professional tax preparer to ensure you pay the Michigan business tax properly to keep your business in good standing and avoid fines.

Federal Taxes for LLCs

As the owner of an LLC, you must pay self-employment tax and federal income tax, which are taxed as “pass-through” income.

Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Michigan LLC is paying the correct amount.

Federal Self-Employment Tax

All members or managers who take profits out of the LLC must pay self-employment tax. This taxis administered by the Federal Insurance Contributions Act (FICA), which covers Social Security and Medicare and other benefits. It applies to all the earnings you withdraw from your business. The current self-employment tax rate is 15.3%.

You'll be able to deduct your business expenses from your income when determining how much self-employment tax you owe.

Pay Less Self-Employment Tax by Treating Your LLC as an S Corporation

The Internal Revenue Service allows an LLC to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.

You do this by filing Form 2553, also known as an S Corp Election form, with the IRS. Bizee can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.

Consult with your accountant or tax advisor for more information on reducing your LLC self-employment tax through an S Corporation tax election.

Federal Income Tax

You are also required to pay regular federal income tax on any earnings you take out of your LLC. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions and filing status.

You only pay federal income tax on profits you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus business expenses and other deductions in areas such as healthcare and some retirement plans.

Speak to your accountant for more information.

Employee and Employer Taxes

If you have employees, you must adhere to other tax requirements. For clear guidance on your situation, speak to your accountant.

Employees May Need to File Tax Returns

Regardless of whether you withhold federal and state income tax, your employees may need to file their own tax returns.

Employee Insurance and Other Requirements

You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.

Other Taxes and Duties for Your LLC

Depending on what industry your business operates in, you may be liable for other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.

Speak to your accountant about any other taxes or duties you may need to pay.

Estimated Taxes

Most LLCs must pay estimated taxes throughout the year, depending on your adjusted gross income, taxable income, taxes, deductions, and credits for the year. The most common types of estimated tax are:

Most LLCs will pay estimated taxes four times a year. Learn more on the IRS website, and speak to your accountant for more information.

FAQs on Michigan Business Taxes