Michigan House Bill HB4961

Michigan 2025-2026 Regular Session

• Introduced: 9/16/25
• Refer: 9/16/25

Caption

Individual income tax: income; treatment of certain deductions for state purposes after changes to federal internal revenue code; modify. Amends secs. 12, 30, 607 & 805 of 1967 PA 281 (MCL 206.12 et seq.).

Impact

The proposed changes within HB 4961 are expected to realign state income tax regulations with federal tax codes, particularly concerning flow-through entities such as S corporations and partnerships. By streamlining the definitions and potentially reducing discrepancies between state and federal tax structures, the bill could lead to enhanced clarity and compliance for businesses operating in Michigan. This could promote business retention and attract new entities by providing a more consistent tax environment.

Summary

House Bill 4961 seeks to amend the Michigan Income Tax Act of 1967 by modifying several definitions and provisions relating to income taxation. The bill specifically intends to address the treatment of flow-through entities and how certain deductions are computed for state income tax purposes. Among the proposed changes, it seeks to redefine what constitutes gross income and taxable income, making adjustments that adhere more closely to current federal taxation standards. This retroactive bill will apply to tax years beginning on or after January 1, 2025.

Contention

However, the bill is not without its controversies. Some legislators have raised concerns about the implications that changes to deductible items might have on lower-income residents and retirees relying on pension benefits. The retroactive application of certain provisions may also face scrutiny. Critics argue that while compliance may improve, additional burdens could surface for individuals and families in navigating the altered definitions and deduction limits, particularly regarding nonresident income members.

Notable_points

Additionally, the bill's provisions regarding nonresident members of flow-through entities have been highlighted as critical, defining how individual members who are non-residents would interact with Michigan tax law. The potential consequences on statesmanship and local control regarding tax revenue generation have also sparked debates among diverse legislative stakeholders. Given the multifaceted implications, further discussions and revisions may be necessary before fully enacting the outlined changes.