Michigan Withholding laws & HR compliance analysis

Michigan Withholding: What you need to know

The Michigan Income Tax Act requires that all employers required to withhold federal income taxes that have employees working in Michigan register and withhold state income tax from residents and nonresidents performing services within the state. Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. Residents of these states who file a nonresidency certificate with their employer are not subject to Michigan withholding. In addition, employers located outside Michigan that have employees who work in Michigan must register and withhold Michigan income tax from all employees working in Michigan, unless Michigan has a reciprocal agreement with that state.
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Withholding applies to compensation paid by employers to employees, including salary, bonus, vacation allowance, and commission. Michigan applies federal law to determine whether withholding is required on fringe benefits such as deferred compensation plans and cafeteria plan contributions. An “employer” is defined as any person or organization for which an individual performs any service as an employee. This includes any person or organization paying compensation to a former employee after termination of his or her employment. An “employee” is an individual who performs services for an employer that controls what will be done and how it will be done. It does not matter that the employer permits the employee considerable discretion and freedom of action, as long as the employer has the legal right to control both the method and the result of the services.
Employee form. Employers are required to obtain a Michigan Exemption Certificate Form MI-W4 from each employee. The federal ...

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