On October 7, 2025, Governor Gretchen Whitmer signed into law HB 4961, which updates Michigan's date of conformity to the Internal Revenue Code (IRC) and decouples from select federal tax changes enacted by the "One Big Beautiful Bill Act" (OBBBA).¹ HB 4961 took effect immediately.²

IRC conformity date

HB 4961 changes Michigan's date of conformity to the IRC for corporate and individual income tax purposes to the IRC in effect on January 1, 2025 (from January 1, 2018). The statute retains the provision that gives taxpayers the option to use the IRC in effect for the tax year.

Decoupling

For tax years beginning after December 31, 2024, a taxpayer's federal taxable income (FTI) or adjusted gross income (AGI) is calculated as though: (1) IRC Sections 168(n) and 174A were not in effect, and (2) IRC Sections 163(j), 168(k), 174 and 179 were in effect on December 31, 2024.

For tax years beginning after January 1, 2021, a taxpayer's FTI/AGI is calculated as if the transition rules under Section 70302 of the OBBBA, including provisions related to IRC Section 174A, do not apply.

Tip and overtime pay deduction

For tax years beginning after December 31, 2025, and before January 1, 2029, individual taxpayers can deduct from their AGI (to the extent not already deducted) an amount equal to the deduction they claimed on their federal income tax return for qualified tips under IRC Section 224 and qualified overtime compensation under IRC Section 225. Nonresidents may deduct the tips and pay only for services performed in Michigan.

Implications

Taxpayers should consider the impact these legislative changes will have on their Michigan state tax liabilities, including estimated tax payments for 2025. For corporate income tax filers, impacts associated with Michigan's decoupling from the OBBBA versions of IRC Sections 163(j) and 174 can be impactful. In determining the limitation for corporate income tax purposes, combined corporate income tax filers will need to consider the effects of the decoupling from the OBBBA version of IRC Section 163(j) and the interplay with Treasury's notice³ requiring each unitary group member to separately consider its own business interest expense, business interest income and adjusted taxable income. Further, the decoupling from the OBBBA version of IRC Section 174 will require Michigan taxpayers to continue to capitalize domestic IRC Section 174 costs as they did for federal income tax purposes under the Tax Cuts and Jobs Act (P.L. 115-97).

States continue to evaluate the impact of the OBBBA on their state tax codes and potential revenue impacts resulting from their current connection to the IRC. While some states have responded legislatively, for instance Colorado, Michigan and Rhode Island, most states are likely to wait until 2026 to consider substantive legislative responses.