Michigan Severance — Flat 4.25% Tax, City Income Tax, 2026

Michigan WARN: what applies#

Michigan has no state-level mini-WARN notice statute. The operative layoff-notice regime for Michigan private employers is federal WARN (29 U.S.C. §§ 2101–2109): employers with 100 or more full-time employees must give 60 days advance written notice for a mass layoff (50+ affected at a single site of employment constituting at least 33% of the active workforce, or 500+ regardless of percentage) or a plant closing. Notice must go to affected employees (or their representatives), the Michigan Department of Labor and Economic Opportunity (LEO) Rapid Response unit, and the chief elected official of the local government. Federal WARN penalties: back pay and benefits for each day notice was not given (up to 60 days), plus a $500/day civil penalty payable to the local government. Michigan adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

How severance is taxed in Michigan#

Michigan operates a single flat individual income tax under MCL § 206.51, with a statutory base rate of 4.25% applied to all tax years since 2012. The 2023 tax year saw a TEMPORARY one-year reduction to 4.05% triggered by the MCL § 206.51(1)(c) revenue-overage formula (which compares General Fund revenue to a baseline-plus-inflation benchmark); the Michigan Department of Treasury determined that the trigger produces a single-year cut, not a permanent reduction, so Michigan returned to 4.25% for 2024, 2025, and 2026. Because Michigan uses a flat rate, supplemental wages — including severance, bonuses, and commissions — are withheld at the same 4.25% rate as regular wages; Michigan does not publish a separate supplemental withholding rate. Michigan additionally allows 24 cities to levy a uniform city income tax under MCL § 141.501 et seq., with rates set in each city's local ordinance — Detroit at 2.4% for residents / 1.2% for non-residents, Grand Rapids at 1.5% / 0.75%, Lansing at 1.0% / 0.5%, and 21 other cities. The city tax applies on a workplace basis for non-resident commuters. On top of Michigan state and city withholding, severance is subject to the federal 22% supplemental rate (37% on cumulative amounts above $1,000,000 in a calendar year) and FICA (Social Security 6.2% to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above $200,000 single / $250,000 MFJ).

Calculate your situation#

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FAQ#

Does Michigan require severance pay?

No Michigan statute requires private employers to pay severance. Michigan has no state mini-WARN that would mandate pay-in-lieu of notice. The only layoff-notice regime that carries teeth in Michigan is federal WARN (29 U.S.C. §§ 2101–2109), which requires 60 days advance notice (or back pay for missed days) at employers of 100+ for covered mass layoffs and plant closings — but WARN mandates notice, not severance. Severance is therefore employer-discretionary in Michigan unless your employment agreement, written severance plan, or company handbook makes it mandatory. Michigan is an at-will employment state.

How is severance taxed in Michigan?

Michigan imposes a single flat individual income tax under MCL § 206.51 at 4.25% for tax year 2026 (and 2024 and 2025). The 2023 one-year drop to 4.05% under the MCL § 206.51(1)(c) revenue-overage trigger did not carry forward — Michigan Treasury determined that the trigger produces a single-year cut, and Michigan returned to the statutory 4.25% for 2024 onward. Because Michigan uses a flat rate, supplemental wages (severance, bonuses, commissions) are withheld at the same 4.25% rate as regular wages; Michigan does not publish a separate supplemental rate. 24 Michigan cities additionally levy a local income tax under MCL § 141.501 et seq. — Detroit at 2.4% / 1.2% (resident / non-resident), Grand Rapids at 1.5% / 0.75%, Lansing at 1.0% / 0.5%, plus 21 other cities. The city tax applies on a workplace basis for non-resident commuters. On top of Michigan state and city withholding, severance is subject to the federal 22% supplemental rate (37% on cumulative amounts above $1,000,000 in a calendar year) and FICA (Social Security 6.2% to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above $200,000 single / $250,000 MFJ). Year-end Michigan liability is reconciled on Form MI-1040.

Does Michigan have a mini-WARN statute?

No. Michigan has no state-level mini-WARN that imposes employer notice obligations independent of federal WARN. The operative regime is federal WARN (29 U.S.C. §§ 2101–2109): 60 days advance notice at employers of 100+ for mass layoffs affecting 50+ at a single site that constitute at least 33% of the active workforce (or 500+ regardless of percentage). Notice goes to affected employees, the Michigan Department of Labor and Economic Opportunity (LEO) Rapid Response unit, and the chief elected local official. Federal WARN penalties: back pay and benefits for each day notice was not given (up to 60 days), plus a $500/day civil penalty payable to the local government. Michigan adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

Does OWBPA apply in Michigan?

Yes. OWBPA is federal (29 U.S.C. § 626(f)) and applies in all states. If you are age 40 or older and your Michigan employer asks you to sign a waiver of age-discrimination claims under the ADEA in your severance agreement, the waiver is enforceable only if you receive at least 21 days to consider the agreement (45 days for group exits — a 'reduction in force' or 'exit incentive program'), and 7 days after signing to revoke. Group exits additionally require disclosure of the ages and job titles of all selected and non-selected employees in the decisional unit. The Michigan Elliott-Larsen Civil Rights Act (MCL § 37.2101 et seq.) separately prohibits age discrimination (no minimum age) by employers with 1 or more employees — a substantially lower threshold than the federal ADEA's 20-employee minimum, so virtually all Michigan employers are still covered by state law. A release of state-law age claims under ELCRA does not require OWBPA-compliant 21/45/7 procedures, but the federal ADEA release portion still does.

Can I collect Michigan unemployment while receiving severance?

Severance generally offsets Michigan UI benefits under MCL § 421.48. The statute treats 'severance payments, salary continuation, or other remuneration intended by the employing unit as continuing wages' as remuneration allocated either as specified in the contract or 'for the period designated by the employing unit or former employing unit.' An individual qualifies as unemployed only if weekly remuneration falls below 1.5 times the weekly benefit rate. In practice, the Michigan Unemployment Insurance Agency (UIA) allocates lump-sum severance week-by-week according to employer designation or the claimant's regular weekly wage; during the allocated period, UI is reduced or eliminated if severance exceeds the eligibility threshold. Once the severance is exhausted, full UI resumes (subject to other eligibility). Practical takeaways: (a) file your Michigan UI claim with UIA on or shortly after your last day worked at michigan.gov/uia to establish your benefit year; (b) fully disclose the severance amount, structure, and any employer designation when you apply and on weekly certifications — failure to report severance is fraud; (c) Michigan's UI maximum weekly benefit amount is $362 as of 2026 (one of the lowest among industrial states); verify the live figure at michigan.gov/uia.

Are non-competes enforceable in Michigan after a layoff?

Often yes if reasonable — Michigan non-compete law is primarily statutory under the Michigan Antitrust Reform Act, MCL § 445.774a, which permits employers to obtain 'an agreement or covenant which protects an employer's reasonable competitive business interests' provided the restrictions are reasonable as to (1) duration, (2) geographic scope, and (3) the type of employment or line of business. The statute applies to covenants entered into after March 29, 1985 and directs courts to limit any overbroad agreement to render it reasonable rather than void it outright (statutory blue-pencil authority). Michigan's leading case is Coates v. Bastian Bros., Inc., 276 Mich. App. 498, 741 N.W.2d 539 (2007). Practical takeaway: in Michigan, a post-separation non-compete reasonable in time, place, and scope is generally enforceable under MCL § 445.774a — so the non-compete release clause in your severance offer has real value. Have an attorney review duration, geography, and scope before signing.

How does the 2023 4.05% temporary rate affect 2026 returns?

It doesn't directly — the 2023 4.05% rate applied to tax year 2023 only and reverted to 4.25% for 2024 onward. The temporary cut was triggered by the MCL § 206.51(1)(c) revenue-overage formula, which compares General Fund revenue to a baseline-plus-inflation benchmark. When the trigger fires, the rate for that tax year drops by a formula amount. The Michigan Department of Treasury determined that the trigger produces a SINGLE-YEAR cut, not a permanent reduction, and Michigan courts subsequently affirmed that interpretation. The practical effect for 2026 severance recipients: don't assume Michigan's rate will be anything other than the statutory 4.25%; the trigger formula has not produced an additional cut for tax year 2024, 2025, or 2026, and the 4.25% statutory base rate continues to apply. Year-end Michigan liability is reconciled on Form MI-1040 at the 4.25% flat rate. Verify the live Michigan Treasury withholding guide before relying on any rate estimate.