Michigan LLC Tax 2026: What You File and What You Owe

You have a Michigan LLC, and you want to know what it costs you in tax. It is a fair question with an annoying answer: Michigan does not tax LLCs. Not because of a loophole — because “LLC” is not a tax classification. It is a legal wrapper created under state law, and both the IRS and the Michigan Department of Treasury look straight through it to a different question: how did you elect to be taxed?

Answer that, and everything else falls out of it — which forms you file, when they are due, and which elections are even available to you. Get it wrong and you can spend a year budgeting for a tax you do not owe while missing the one that is actually taking the biggest bite. Here is the whole picture for tax year 2026, in the order it matters to a Grand Rapids business owner.

Michigan has no LLC tax

There is no Michigan LLC tax, no annual franchise tax on a plain LLC, and no state gross-receipts tax. What Michigan has is an individual income tax, a corporate income tax, and a handful of transaction taxes — and your LLC gets sorted into those based on its federal classification.

The search results do not make this easy. Type the question into Google today and the top organic result is a State of Michigan page for the Michigan Business Tax, whose snippet advertises “a 4.95% business income tax.” That tax was replaced for almost every taxpayer in the state on January 1, 2012. It has nothing to do with your LLC, and we unpick that whole mess in the companion guide to Michigan business tax.

What sits above it is arguably worse. Google’s AI-generated answer confidently tells LLC owners they can elect Michigan’s flow-through entity tax to work around “the federal $10,000 SALT deduction cap.” As you will see below, the most common kind of Michigan LLC is specifically barred from that election, and the $10,000 cap has not been the operative number since 2024.

The four ways Michigan taxes an LLC

Every LLC in Michigan lands in one of four buckets. Three of them are pass-throughs, which means the business itself pays no state income tax and the profit is taxed once, on the owner’s personal return, at Michigan’s flat 4.25% individual rate for tax year 2026.

Most Michigan LLCs never make an election at all, and that is fine — the first two rows are the defaults. One owner means disregarded; two or more means partnership. You only leave the defaults by actively filing for it.

The fourth row is the one people fear and almost nobody uses. Treasury imposes the 6% Corporate Income Tax on “C corporations and taxpayers taxed as corporations federally,” and an LLC only lands there if it deliberately filed Form 8832 to be treated that way. Even then, businesses with under $350,000 in allocated or apportioned gross receipts, or with a liability of $100 or less, are not required to file or pay it at all.

What an LLC owner actually files

This is the part the guides skip. Knowing your classification is only useful if you know what paperwork it generates. For a calendar-year filer covering tax year 2026:

Read the Michigan column again. For three of the four classifications, your LLC files nothing at all with Treasury for income tax purposes. Michigan has no partnership income tax return and no S corporation return. The profit is reported by the humans who own the business, on their personal returns.

Two things can still land on top of that list regardless of classification: sales and use tax if you sell goods at retail or pull materials from inventory, and withholding tax if you have employees. Those are transaction taxes, not entity taxes, and they catch far more Grand Rapids contractors than the income tax ever does.

One optional extra worth knowing exists: a multi-member LLC with two or more nonresident members may file a Michigan Composite Individual Income Tax Return (Form 807) on their behalf. It is optional, it is only for nonresidents, and for a typical West Michigan LLC whose owners all live in Kent or Ottawa County it simply does not come up.

Self-employment tax is the bill your LLC does not change

Here is the number people searching for “Michigan LLC tax” are usually not looking for, and usually should be.

Take a drywall contractor in Grand Rapids running a single-member LLC that nets $95,000 in 2026. Everyone worries about the state. So let us do the state first: at 4.25%, Michigan’s cut of that profit is about $4,038 before exemptions.

Now the one nobody asked about. Self-employment tax is charged at 15.3% — 12.4% for Social Security and 2.9% for Medicare — on 92.35% of net profit. On $95,000 that is a self-employment base of $87,733 and a bill of roughly $13,423.

The details that matter for tax year 2026:

• The Social Security portion applies to the first $184,500 of combined wages and net self-employment earnings. Above that, only the 2.9% Medicare portion continues — it has no ceiling.
• An extra 0.9% Additional Medicare Tax applies above $200,000 of income if you are single, or $250,000 filing jointly.
• You owe it once net earnings from self-employment reach $400. There is no small-business grace zone.
• You may deduct the employer-equivalent half — about $6,712 in this example — in figuring your adjusted gross income. It reduces income tax, not the self-employment tax itself.
• Nobody withholds it for you. It comes out through quarterly estimated payments, and missing those is the single most common way a first-year LLC owner ends up with a April surprise.

The S corporation election is the actual lever

If self-employment tax is the biggest number, the S corporation election is the only mainstream tool that moves it. It is also routinely oversold, so here is the balanced version.

Elect S corporation treatment and you stop being self-employed in the eyes of the IRS. You become an employee of your own business. You must pay yourself a reasonable salary through real payroll, and that salary carries the same 15.3% in combined employer and employee payroll taxes. Profit distributed above the salary is not subject to those taxes.

Back to the contractor. Suppose $60,000 of that $95,000 is defensible as reasonable compensation for the work. Payroll taxes on $60,000 come to $9,180, against $13,423 as a sole proprietor — a gross difference of about $4,243.

Then subtract what it costs to get there. A separate Form 1120‑S each year. Real payroll: W‑2s, quarterly filings, registration for Michigan withholding tax, and either a payroll service or the time to run it. Higher preparation fees, because there are now two returns instead of one. For most owners the honest net saving is a few thousand dollars, and it turns negative somewhere below roughly $50,000 of profit.

Two warnings. “Reasonable” is not a number you choose for tax reasons — it is what someone would have to be paid to do your job, and an unreasonably low salary is the fastest way to draw IRS attention to a small S corporation. And the election interacts with the qualified business income deduction in ways that can quietly claw back part of the saving. This is a modelling exercise on your actual numbers, not a rule of thumb, which is exactly the kind of question business tax planning is for.

The flow-through entity election most Michigan LLCs cannot make

Michigan offers an elective flow-through entity tax that lets a business pay state tax at the entity level so the owners can claim a credit on their personal returns. It is genuinely useful for the businesses that qualify.

Most single-owner Michigan LLCs are not among them. Treasury’s own flow-through entity tax FAQ lists exactly who is eligible — LLCs that file federal returns as partnerships, partnerships, and S corporations — and then, under the heading of who is not eligible, names the exclusion outright:

A single-member LLC is a pass-through in every ordinary sense of the word, and it is barred by name. So is any LLC that elected C corporation treatment. If you are the sole owner of your LLC and you have made no election, this door is closed to you — and no amount of restructuring your bookkeeping opens it. Adding a genuine second member or making an S election would, but those are real business decisions with consequences well beyond one credit.

It also matters that the reason to want it has shrunk. The federal cap on deducting state and local taxes was $10,000 for years, and that cap is what made entity-level payment attractive. It is no longer $10,000: the limit is $40,400 for tax year 2026 — $20,200 for married filing separately — and it only begins phasing down above $500,000 of modified adjusted gross income. Plenty of owners who would have benefited under a $10,000 cap simply do not clear the new one.

If you are eligible and considering it, read the mechanics before you act — the election is made by payment through Michigan Treasury Online, it binds you for three years, and it is irrevocable. We cover the timing traps and the member-reporting forms in the Michigan business tax guide.

Grand Rapids adds a return your LLC probably forgot

Every national guide to Michigan LLC tax stops at the state line. Grand Rapids does not.

The city levies its own income tax — 1.5% for residents and 0.75% for non-residents on income earned inside the city, with $600 subtracted per exemption. Business profit counts. A contractor whose jobs are inside city limits owes Grand Rapids on the portion of profit earned there, whether or not they live in the city.

What surprises people is that the city runs its own entity returns. A multi-member LLC operating in Grand Rapids files a GR‑1065 partnership return; an LLC taxed as a C corporation files a GR‑1120. So the LLC that files nothing with the State of Michigan may still owe the city a return. Walker has its own income tax on the same pattern. Full detail on rates, residency and who has to file is in our Grand Rapids city income tax guide.

Your $25 annual statement is not a tax

Search “Michigan LLC tax” and you will be told, usually in the same breath as the tax rates, that you owe $25 every February 15. That filing is real. It is not a tax, and it does not go to Treasury.

The annual statement goes to the Corporations Division at LARA, and it exists to keep the public register current — your registered office, your resident agent. LARA’s own page is blunt about it: “This is not the same thing as filing your taxes.” Paying it does not discharge a single tax obligation, and skipping it does not create one.

The flat “$25” is also wrong for a lot of West Michigan owners:

• A standard LLC pays $25. A professional limited liability company — the form used by licensed professionals, and the reason a therapy practice is usually a PLLC rather than an LLC — pays $75, and files an annual report as well as an annual statement.
• Both are due February 15, with a $50 penalty after that date. Online filing opens the previous October 15.
• If the LLC was formed after September 30, it skips the February 15 immediately following — a first-year break that catches people out in both directions.
• Miss it long enough and the company stops being in good standing after two years, at which point the name becomes available to anyone else who wants it.

When to bring in a CPA

Plenty of single-member LLCs with straightforward books do not need much help. The questions that reliably justify a conversation are the ones where the answer changes the number materially:

• Profit is climbing past roughly $50,000 and the S corporation election is now worth modelling properly rather than guessing at.
• You are taking on a partner, which changes your classification, your federal filing, and whether the flow-through entity election is even available.
• You work across city lines in and out of Grand Rapids or Walker and are not sure what is apportioned where.
• You have never made a quarterly estimated payment and the self-employment tax number above was a surprise.
• You sell goods as well as services, which pulls sales and use tax into a picture that used to be income tax only.

4K Accounting Services is a CPA-led firm in Grand Rapids. Mindy Kiliszewski has been filing Michigan business and individual returns for 28+ years, works with clients in QuickBooks Online and Xero, and the bulk of that client base is in trades and construction — the people this post was written for. The first conversation is free and there is no obligation attached to it.

FAQ

What taxes does an LLC have to pay in Michigan?

By default, none at the entity level. A single-member LLC is disregarded and a multi-member LLC is a partnership, so Michigan taxes the profit on the owners’ personal returns at 4.25% for tax year 2026. An LLC only owes the 6% Corporate Income Tax if it elected C corporation treatment federally. Sales and use tax, withholding tax and city income tax can apply to any LLC depending on what it does.

How much will my LLC pay in taxes?

The state portion is the small part. On $95,000 of profit for tax year 2026, Michigan income tax at 4.25% is roughly $4,038, while self-employment tax at 15.3% is roughly $13,423 — more than three times as much. Federal income tax sits on top of both, and a Grand Rapids business adds city income tax. Budget for self-employment tax first; it is the bill that surprises people.

What are the disadvantages of an LLC in Michigan?

The main one is what an LLC does not do: it gives you no relief from self-employment tax. Profit from a default LLC carries the full 15.3% exactly as it would with no LLC at all. You also take on an annual statement with LARA, and as a single-member LLC you are specifically excluded from Michigan’s flow-through entity tax election. The liability protection is real; the tax saving, by itself, is not.

Can a single-member LLC elect the Michigan flow-through entity tax?

No. Treasury’s flow-through entity tax FAQ specifically excludes “entities that are disregarded for federal income tax purposes, such as single member LLCs,” along with LLCs that file federal returns as corporations. Eligibility is limited to LLCs filing federally as partnerships, partnerships, and S corporations. Adding a genuine second member or making an S election would qualify the business, but each is a real change in how it is taxed.

Is the Michigan LLC annual statement a tax?

No. The annual statement is filed with LARA’s Corporations Division to keep the public register current, and LARA states plainly that it “is not the same thing as filing your taxes.” It costs $25 for a standard LLC and $75 for a professional limited liability company, is due February 15 each year, and carries a $50 penalty if it is late. Paying it satisfies no tax obligation.