Rules on Withholding Tax Exemptions in the State of Michigan

Michigan employers are required to withhold federal and state income tax from employees’ paychecks. The employer follows the Internal Revenue Service’s rules for withholding federal income tax and the Michigan Department of Treasury’s policies on withholding state income tax. An employee’s income tax withholding amount largely depends on her exemptions.

The IRS requires the employee to claim her exemptions and allowances on Form W-4. The Michigan Department of Treasury requires her to claim exemptions on a MI-W4 form. Each claimed allowance gives the employee a certain sum, which reduces her taxable wages. Consequently, the more exemptions she claims, the less income tax she pays; the less exemptions she claims, the more income tax she pays. Even if the employee refuses to submit a W-4 or MI-W4, both the IRS and the Michigan Department of Treasury require the employer to withhold taxes.

To claim exemptions for federal income tax purposes, the employee completes the personal allowance section of his Form W-4. He may claim an exemption for himself, for example, on line A, one for his spouse on line C, and one for each of his dependents on line D. The employer uses IRS Circular E for the tax year in question to determine the amount allowed for each allowance based on the employee’s pay period.

For tax year 2010, one withholding allowance for a weekly payroll period is $70.19; for a biweekly payroll period the amount is $140.38 ($70.19 x two weeks). Therefore, if the employee is paid weekly and has three exemptions, his total allowances equal $210.57. The employer subtracts the total withholding allowances sum from the employee’s gross wages. The result is the amount of pay subject to federal income tax withholding. If the employee refuses to submit a Form W-4, the employer withholds as though he has no exemptions.

The employee claims her total personal and dependent exemptions for state income tax withholding purposes on line 6 of her MI-W4 form. The employer submits a copy of the employee’s MI-W4 form to the Michigan Department of Treasury if she claims exemption from withholding or claims more than 10 exemptions.

The employer uses the Michigan Income Tax Withholding Guide for the appropriate tax year to determine the amount allowed per exemption. The amount per exemption for a weekly payroll in 2011, for example, is $71.15. The employer subtracts the employee’s total allowances sum from her gross pay, then multiplies the result by 4.35 percent to arrive at the withholding amount. If the employee fails to submit a MI-W4 form, the employer makes the withholding as though she has no exemptions. In this case, it multiplies the flat percentage by her gross income.

Michigan employees may claim they are exempt from federal income tax on their Form W-4 and from state income tax on their MI-W4 form if they meet the requirements stated on the form. If exempt, the employee does not pay the respective income tax.