Michigan Business Taxes for LLCs
Business taxes are a fact of life, and your MI LLC will need to pay a variety of taxes to both the federal and Michigan governments. We’ll cover all the main taxes in Michigan including self-employment, payroll, federal, Michigan state tax and Michigan sales tax.
If you want help with your taxes, Incfile provides a complete Business Tax Filing service.
How Your Michigan LLC Will Be Taxed
The profits of a Michigan LLC are not taxed at the business level like those of C Corporations. Instead, taxes for a Michigan LLC work as follows:
- Michigan LLC owners pay self-employment tax on business profits
- Michigan LLC owners pay MI state tax on any profits, less state allowances or deductions
- All LLC owners pay federal income tax on any profits less federal allowances or deductions
- Some MI LLCs pay Michigan sales tax on products
- Employers pay payroll tax on any salaries they pay to employees
- Employees pay federal, state and payroll tax on their earnings
Items 1, 2 and 3 are taxed as “pass-through” income for any LLC owners, managers or members who receive profits from the business. Any profits are reported on federal and Michigan personal tax returns, and that’s where you will pay those taxes.
Michigan Taxes Payable to the MI Department of Treasury
There are two main types of tax that you will pay to the Michigan Department of Treasury: Michigan state income tax and Michigan state sales tax.
Michigan State Tax on Your LLC Earnings
As a Michigan business owner, you will need to pay MI state tax on any money you pay to yourself. These earnings flow through to your personal tax return, which is where you will pay Michigan income tax. You will be taxed at the standard rates for Michigan state taxes, and you will also get to apply regular allowances and deductions.
Any salaried employees will also need to pay personal Michigan state taxes.
The Michigan state tax rates are typically 4.25 percent.
Get details on the Michigan state tax here.
Michigan Sales Taxes on LLC Sales
If you sell physical products or certain types of services, you may need to collect sales tax (also known as sales and use tax) and then pay it to the MI Department of Treasury. Michigan sales tax is collected at the point of purchase. Michigan sales tax rates do vary depending on the region, county or city where you are located.
You will typically need to collect Michigan sales tax on:
- Tangible, personal property and goods you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
- Certain services that your Michigan business might provide
Most states do not levy sales tax on goods that are considered necessities, like food, medications, clothing or gas.
Get details on the Michigan sales tax here.
Sales Tax Rates for Your Michigan LLC
Sales tax rates do vary between states, counties and cities. Typically, the state will set a base sales tax rate, then specific counties and cities may levy small additional sales tax amounts on top of that.
Federal Self-Employment and Income Taxes for Your Michigan LLC
There are a couple different federal taxes that every LLC will need to pay, including Michigan LLCs. These are self-employment tax and federal income tax, which are taxed as “pass-through” income via your tax return forms.
Michigan LLC Federal Self-Employment Tax
All Michigan LLC business members or managers who take profits out of the LLC will need to pay self-employment tax. This tax is also known as FICA, Social Security or Medicare tax. It applies to all the earnings you withdraw from your Michigan business. The current self-employment tax rate is 15.3 percent.
You will be able to deduct your business expenses from your income when working out how much self-employment tax you owe. Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:
- On profits of $30,000, you would pay self-employment tax of $4,590
- On profits of $70,000, you would pay self-employment tax of $10,710
- On profits of $120,000, you would pay self-employment tax of $18,360
- On profits of $160,000, you would pay self-employment tax of $24,480
Pay Less Self-Employment Tax by Treating Your Michigan LLC as an S Corporation
The Internal Revenue Service allows LLCs to ask to be treated as an S Corporation for tax purposes. This can help you reduce the amount of self-employment tax you pay by declaring some of your income as salary and other income as distributions or withdrawals.
You can do this by making an “S Corporation Tax Election” with the IRS using Form 2553. We can file your Form 2553 with the IRS on your behalf.
Incfile Form 2553 S Corporation Tax Election for an LLC service
Speak to your accountant for more information on reducing your Michigan LLC self-employment tax through an S Corporation Tax Election.
LLC Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your Michigan LLC. The amount of income tax you pay depends on your earnings, current income tax brackets, deductions and how you file.
You only pay federal income tax on your Michigan LLC profits that you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus LLC business expenses and other deductions for areas such as healthcare and some retirement plans. Speak to your accountant for more information.
Employer and Employee Taxes for Your Michigan LLC
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your own unique situation.
Employer Payroll Tax Withholding
All employers must collect and withhold payroll tax from their employees when they receive their salaries. You would normally withhold 7.65 percent of the taxable salary that you pay to your employees.
Federal and State Tax Withholding
You may also choose to withhold federal and Michigan state income tax on the wages you pay to employees. Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and Michigan state income tax, your employees may need to file their own tax returns.
Michigan LLC Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, like employee compensation insurance or unemployment tax. There will also be other requirements you have for employees.
Get more requirements from the Michigan Bureau of Employment Relations website.
Other Taxes and Duties for Your Michigan LLC
Depending on the industry you are in, your Michigan LLC may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. If you import or export goods, you may need to pay certain duties. Speak to your accountant about any other taxes you may need to withhold or pay.
Estimated Taxes for Your Michigan LLC
Most Michigan LLCs will need to pay estimated taxes throughout the year, depending on the amount of income and profit you expect to make. The most common types of estimated tax are:
- Federal income tax
- Federal self-employment tax
- Michigan state tax
Most Michigan LLCs will pay estimated taxes four times a year. Speak to your accountant for more information.
FAQs on Michigan LLC Business Taxes
Does Michigan Have Sales Tax?
Yes. Michigan does have a sales tax, which may vary among cities and counties. You can find more information above.
Does Michigan Have a State Tax?
Yes. Michigan does have a general state income tax. You can find more information above.
Do I Need to Pay Estimated Taxes?
Yes. In most cases you must pay estimated taxes on your Michigan tax, federal income tax and self-employment tax. Speak to your accountant for more information.