State to collect Detroit's income tax in 2016
The state's takeover of collection of the city income tax in Detroit starting in 2016 will allow for faster income tax returns and, for the first time, electronic filing by city residents and suburbanites who work in Detroit, officials say.
But they're holding back on presuming how much additional tax revenue the city will take in with the Michigan Department of Treasury in charge of collecting income taxes for the state's largest city.
Treasury spokesman Terry Stanton said that many behind-the-scenes details are still being worked out, but many of the changes involved in the transfer of collections duties won't be all that dramatic for taxpayers.
The two most visible changes will be that income taxpayers will be able to file electronically for the first time, much the same way they're able to file state taxes online. With that ability, the state expects collection of income taxes in Detroit will involve much less paperwork, which in turn will speed up processing and result in faster refunds — a major change for a city where taxpayers often wait months or even years before their refund checks arrive.
"It really should mirror what we do with state tax returns. And we don't think at this point it will mean a significant change for taxpayers," Stanton told the Free Press.
With the state overseeing collection of income taxes, Detroit Mayor Mike Duggan's administration anticipates that compliance rates will improve and the city will end up bringing in more income tax revenue. That's crucial, because even with additional residents moving into hot-spot neighborhoods downtown and in Midtown, along with companies moving into the city, income tax revenue is expected to fall by $10 million to $254 million in the 2016 budget.
Detroit Chief Financial Officer John Hill blamed the shortfall on a reduction in income tax withholding by employers in the city. In February, he told the Financial Review Commission, the state board overseeing Detroit's fiscal affairs post-bankruptcy, that he believes a fair number of the new workers downtown are contract workers on whom employees file 1099 tax forms, and not W-2 forms. The city can't withhold income taxes from 1099 forms, he said, so "it's up to the individual to comply by paying."
With the state in charge of collecting taxes, those who've evaded paying Detroit income taxes — residents of the city who have jobs in the suburbs where the city can't legally force companies to withhold taxes, and suburban workers with jobs in the city — will find it harder not to pay.
"We do believe collection will improve, because there will be access to data that's right there" for state treasury officials to notice and address, Hill said. "Someone who lives in the city of Detroit and doesn't fill out the Detroit tax return piece, they'll know it right away."
Still, he and Duggan say they're not banking on any revenue increases from the state collecting city income taxes until the additional money starts coming in. Hill said there's no estimate yet on just how much more the city can expect to bring in.
"I don't think there is any doubt that there are a lot of businesses and individuals moving into the city; the income tax collections aren't reflecting that, but our income tax system is hopelessly antiquated," Duggan told reporters after he presented the 2016-17 budget to the City Council recently. The state collecting income tax for Detroit starting next year, "along with a number of other steps, hopefully will do a better job of collecting what we're owed."
Stanton said the idea of the state collecting city income taxes for Detroit arose in 2012, when the city and the state were in negotiations to avoid an emergency manager under then-Mayor Dave Bing as the city's finances were spiraling into an eventual bankruptcy.
Other cities that levy income taxes — 21 other Michigan cities do, including Pontiac, Highland Park, Grand Rapids and Lansing — may eventually move to have the state take over their income tax collections, Stanton said. But for now, it's Detroit alone; the Legislature earmarked $2.9 million for the current and next fiscal years to cover the state's start-up costs, Stanton said.
Stanton said he could not go into detail about the sorts of checks and auditing the state does for tax compliance, but the state's authority to enforce tax laws likely will lead to improved compliance for cities with income taxes.
But he said it will be up to the Legislature to change state law to address unpaid income taxes by city residents who have jobs with suburban companies that don't withhold city income taxes, a loophole that Duggan and other mayors across the state are working with lawmakers to close. Stanton said legislation is expected to be introduced this year to force suburban companies to withhold income taxes on employees who live in cities with income taxes.
Michigan Printable Income Tax Forms 98 PDFS
Michigan has a flat state income tax of 4.25% , which is administered by the Michigan Department of Treasury. TaxFormFinder provides printable PDF copies of 98 current Michigan income tax forms. The current tax year is 2016, and most states will release updated tax forms between January and April of 2017.
Printed all of your Michigan income tax forms? Head over to the Federal income tax forms page to get any forms you need for completing your Federal Income Tax return in April.
Michigan Income Tax Form Addresses
Michigan has multiple mailing addresses for different tax forms and other forms of correspondence. Make sure you send your completed tax forms to the correct address - some forms may have a different mailing address specified in the form instructions.
Here are one of the most important Michigan Department of Treasury mailing addresses for tax returns and general correspondence:
Disclaimer: While we do our best to keep this list of Michigan income tax forms up to date and complete, we cannot be held liable for errors or omissions. Is a form on this page missing or out-of-date? Please let us know so we can fix it!
Two State Tax Returns: Live in One State, Work in Another
Photo by Jimmy Emerson on Flickr.com
I get a lot of questions from people about working in one state and living in another. That’s pretty common here in Saint Louis where we have lots of folks living in Illinois that come over the river to work here and vice versa. Today I’m going to talk about doing your tax return when you have two states to deal with.
First, the technical words you need to know:
The state you live in is called your resident state. There will probably be a check box or something like that in your computer program. If you live in Illinois, then your resident state is Illinois.
The state you work in (but don’t live in) is called the non-resident state. In this example, Missouri is the non-resident state.
Tax liability: This is not your refund or the amount of money that was withheld on your W2. Tax liability is a number computed when you prepare the state tax return. It will say “tax liability” on your state income tax form. This is the dollar amount the state says that you owe them for taxes before they take into account what you’ve already paid through your withholding or estimated payments.
That’s not so hard, right? Next, you need to make sure you do your tax returns in the right order:
Always do the federal return first. Make sure that it’s done and that it’s right before you start your state returns. If you finish, and then go back in to make changes to the federal, you’ll have to go back and double check everything on the state returns and that can be a pain in the back, so finish the federal first.
Next, do the non-resident state—that’s the state you work in. That one’s easiest. You only pay tax in that state for the wages you earn in that state. Usually, when preparing a non-resident state return, there will be a check box that says “non-resident” somewhere in your software. Be sure to check it. You’ll want to make note of your “tax liability” for the non-resident state. You’ll need that number for your resident state return.
After you’ve finished the non-resident state, then you can prepare your resident state return. You resident state is going to tax all of your income (including the wages you earned in the other state.) The resident state will include your wages, interest, dividends, stock trades, retirement income, and basically everything else that’s taxable.
Things to know about the resident state return:
Even though you pay tax on all of the income you earn to your resident state, you will get a credit for taxes paid to another state. For example: using our Illinois/Missouri return again—since you paid income tax to Missouri for the wages you earned while working there, Illinois will give you a credit for those taxes paid so you won’t end up having to pay twice for working in another state.
The form you need to complete will have different names depending on the state, but it will basically be called a Credit for Taxes Paid to Another State. Sometimes it will be listed as an NR Credit. Depending on which software you use, you might have to dig for it. Some software programs are really easy and it will just pop up automatically when it recognizes that you have multiple states.
Remember the tax liability number I told you to remember? Well that’s going to go on your NR Credit form. Some software is really good at automatically plugging it in for you. In some other programs, you’ll have to manually enter it. The important thing is that you know that number needs to be there and that you know to look for it.
I’m getting a really big refund from my resident state, can that be right? Most likely not. When you see an unusually large state refund, it’s always a good idea to take a closer look. Check to make sure that the income numbers match up to the federal return and that the Credit for Taxes paid to another state was computed properly. It’s rare to get a big refund to your resident state unless you’ve had some other income that had withholding. The credit for taxes paid to another state usually will almost never be more than what you would have paid for taxes in your own state.
I’m showing that I owe a whole lot of money to my home state, can that be right? Maybe yes, but maybe no. The first thing you want to check is that you’ve taken your credit for taxes paid to another state. That’s the most common problem when you owe a lot. Other factors could be working in a no-tax state while you’re living in a taxing state. For example, let’s say you live in Louisianna but work across the border in Texas. You won’t pay taxes in Texas so there’ll be no credit for taxes paid there. In a case like that, you’ll definitely owe. Also, you could have a big difference because the states have different tax rates. For example: Missouri’s tax rate used to be twice as much as Illinois. If you lived in Missouri and worked in Illinois (opposite of our example earlier), you’d still owe Missouri about as much again as what you paid Illinois. (Now the rates are much closer, but people who live in Missouri and work in Illinois will still wind up owing extra for their Missouri taxes.)
What if I live in a reciprocal state? Some states have arrangements with their neighboring states to share tax information and tax revenues. In a situation like that, you’ll just pay taxes in your home state. The states will actually sort out who gets how much of your tax money. Usually, it’s simply a matter of checking the “reciprocal state” button in the software.
For most people, if your federal return is fairly simple, preparing two states is not that difficult. Use a good software program, follow these directions, and you should be fine.