Bill

HB 5118

Individual income tax: credit; work opportunity tax credit for qualified employees; provide for. Amends 1967 PA 281 (MCL 206.1 - 206.847) by adding secs. 279 & 679. TIE BAR WITH: HB 5119'25

2025-2026 Regular Session Introduced by Timmy Beson and 5 co-sponsors

HB 5118 creates a Michigan state work opportunity tax credit worth 50% of the federal WOTC for qualified Michigan hires, nonrefundable and limited to tax liability.

bill electronically reproduced 10/23/2025

#corporateincometax:credits #individualincometax:credit #labor:employmentincentives

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Bill Summary · HB 5118

Summary — HB 5118 (House Introduced Bill)

Title: Individual income tax: credit; work opportunity tax credit for qualified employees; provide for. (Adds MCL sections 279 & 679 to the Income Tax Act of 1967)
Introduced: March 13, 2025; electronically reproduced Oct 23, 2025
Effective date (if enacted): Tax years beginning on or after January 1, 2026
Tie bar: Bill does not take effect unless HB 5119 of the 103rd Legislature is also enacted

Purpose / Intent

HB 5118 creates a state-level work opportunity tax credit (WOTC) tied to the federal WOTC (Internal Revenue Code §51). The intent is to provide a Michigan income tax credit to employers who hire and pay “qualified wages” for workers certified as members of federally defined targeted groups, thereby incentivizing hiring of certain disadvantaged job seekers.

Key provisions

Adds two new sections (279 and 679) to the Michigan Income Tax Act to authorize a state WOTC for tax years beginning on or after Jan 1, 2026.
Credit amount: a taxpayer-employer (excluding organizations exempt under IRC §501(c)) may claim a credit equal to 50% of the amount the taxpayer is (or would have been) allowed under IRC §51 for the same tax year.
- When calculating the state credit, taxpayers must exclude:
- Any portion attributable to employees who are not “qualified employees” under the bill; and
- Any unused federal §51 credits that are carried back or forward under IRC §39.
Nonrefundable: Any credit amount in excess of the taxpayer’s Michigan tax liability is not refundable.
Flow-through entities: Section 279 explicitly allows members of qualifying flow-through entities to claim a state credit based on their distributive share of business income (or an alternative department-approved method). Section 679 contains a substantively similar credit provision but does not include the explicit flow-through member provision.
Definitions:
- “Qualified employee” — a resident of Michigan certified by the Michigan Unemployment Insurance Agency as a member of a targeted group (as defined in IRC §51(d)).
- “Qualified wages” — defined by reference to IRC §51.

Who is affected

Primary: Employers that are taxable under Michigan’s Income Tax Act who hire Michigan residents certified as members of IRC §51(d) targeted groups.
Excluded: Organizations exempt from federal taxation under IRC §501(c).
Flow-through owners (under sec. 279) may claim credits attributable to their distributive share.

Fiscal and policy implications (high-level)

Provides a hiring incentive by converting a portion of the federal WOTC into a state tax benefit (50% of the federal credit amount).
Because the credit is nonrefundable and no state carryforward is provided, the benefit is limited to employers with Michigan tax liability in the year earned.
Administration will require coordination with the Michigan Unemployment Insurance Agency for certification of qualified employees and with the Department of Treasury for claim procedures and any alternative allocation method for flow‑through owners.

Legislative status / timeline highlights

Filed: March 13, 2025
Committee activity: Referred to subcommittee on Workforce; reported out as substituted; public hearing(s); placed on General State Calendar (May 15, 2025)
Latest activity in file: Bill text reproduced Oct 23, 2025; re‑introduced/read first time Oct 23, 2025 and referred to Committee on Economic Competitiveness
Enacting condition: The bill expressly will not take effect unless HB 5119 of the 103rd Legislature is also enacted.