How Michigan withholds on a bonus
Michigan withholds a bonus at its flat 4.25% rate with no separate supplemental figure. On a $10,000 bonus the percentage method withholds $2,200 federal, $620 Social Security, $145 Medicare and $425 Michigan, leaving $6,610, the example IRS-style guides most often use. In the 24 Michigan cities with an income tax the city rate also applies to a bonus earned there: Detroit's 2.4% for residents ($240 on $10,000) and 1.2% for non-residents, Grand Rapids's 1.5% and 0.75%, 1% and 0.5% elsewhere. City tax is not included here.
Because the state rate is flat, the aggregate method changes Michigan's line only marginally and raises the federal line to about $2,700 for a $60,000 earner paid every two weeks. The $5,900 exemption has been used up by salary, so a bonus is taxed at the full 4.25% on the return and the state withholding settles even.
What the withholding means for your Michigan return
Any refund on a Michigan bonus is federal: a $60,000 single filer's marginal federal rate is 12% up to $50,400 of taxable income and 22% above, so a $10,000 bonus is really taxed at about $1,450 federal against $2,200 withheld, and roughly $750 returns. Residents of Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin who earn a bonus in Michigan are withheld for their home state under reciprocity, though Detroit's non-resident city tax still applies. The Michigan paycheck calculator shows the marginal rates for any salary. Exemptions on Form MI-W4 reduce regular withholding by $5,900 each, but a bonus paid separately is withheld at the full 4.25% regardless of them.