New state law exempts Michigan income tax on tips, overtime, Social Security income

Chad Livengood, The Detroit News on Oct 8, 2025

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TRENTON, Mich. — Gov. Gretchen Whitmer and a bipartisan group of lawmakers crowded into a Downriver diner Wednesday morning to celebrate a new law that next year will exempt tips, certain overtime pay and Social Security income from the state’s 4.25% income tax.

The elimination of state income taxes on tips and overtime pay is intended to be paired with a new federal law that President Donald Trump signed in July — fulfilling a campaign promise — which exempts the income from federal taxes, with some limitations.

The Legislature approved the new tax exemption last week, and Whitmer signed it into law on Tuesday, along with scores of other bills tied to the passage of a new budget to fund state government through next September.

Eliminating state income taxes on tips, overtime and Social Security income was a priority for House Republicans in the recent budget negotiations so the state law matches the new federal tax law, said Speaker Matt Hall, a Kalamazoo County Republican.

"I mean, how disappointing if they think they're getting no tax on tips, overtime and Social Security, except when it comes to their state tax," Hall said.

Hall joined Whitmer, House Democratic Leader Ranjeev Puri of Canton Township and two Downriver lawmakers — Democratic Sen. Darrin Camilleri of Trenton and Republican Rep. Rylee Linting of Grosse Ile — to tout the new law at Mom's Restaurant on Fort Street in Trenton.

"As any server, bartender or delivery driver will tell you, tips are often the difference between making or missing a rent payment, buying fresh veggies and fruit for your family, or finally, making a car repair that you've been putting off," Whitmer said. "Michiganders with hourly jobs are often on their feet all day long. They earn their tips, and they deserve to keep them."

Up to 300,000 Michigan workers will save an average of $400 annually in taxes on tips, Whitmer said.

When paired with the federal tax break, the savings balloon to an average of $1,500, the Democratic governor said.

"That's a big deal for people who are working hard every single day, including the staff here at Mom's Restaurant," said Whitmer, who called the diner "a Trenton institution."

For overtime pay, the average hourly worker will save $500 on his or her state income taxes and another $1,500 in federal taxes, Whitmer said.

The new tax relief "builds on" the 2023 rollback of income taxes on pension income and an expansion of the Earned Income Tax Credit for low-income families, the governor said.

The owners of Mom's Restaurant, Konstantinos and Aspasia Dimopoulos, said the new tax exemption will boost the take-home pay of their workers and reduce the payroll headaches they endure each week, sorting out tips for servers from hourly wages.

Aspasia Dimopoulos, who goes by Sia, highlighted the work of the first server the diner hired, Cheryl Andersen, 34 years ago, when they opened the restaurant.

"This bill is a triumph for Cheryl and everyone in the food and beverage industry who rely heavily on tips," Aspasia Dimopoulos said.

The income tax deduction is only good for the next three calendar years — 2026, 2027 and 2028 — and expires on Jan. 1, 2029, according to an analysis by the nonpartisan House Fiscal Agency.

The federal One Big Beautiful Bill Act allows workers to deduct up to $25,000 in taxable income from tips or overtime compensation.

The new federal law also allows retirees to claim both a $20,000 income tax exemption for single filers or $40,000 for joint returns, as well as deduct Social Security income from their taxable income.

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