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SB 994

Individual income tax: withholding requirements; work opportunity withholdings tax credit for certain tax exempt organizations; provide for. Amends 1967 PA 281 (MCL 206.1 - 206.847) by adding sec. 714. TIE BAR WITH: SB 0995'26

2025-2026 Regular Session Introduced by Stephanie Chang and 2 co-sponsors

Creates a 50% Michigan withholding tax credit for 501(c) nonprofits equal to federal WOTC credit, limited to qualified wages and nonrefundable.

REFERRED TO COMMITTEE ON ECONOMIC AND COMMUNITY DEVELOPMENT
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WeVote Research Nonpartisan
Bill Summary · SB 994

Summary of SB 994 (2025-2026) — Michigan

SB 994 proposes to add a new section to the Michigan Income Tax Act (Public Act 281 of 1967) that creates a work opportunity tax credit for certain employers. The credit is tied to the amount of a Federal Work Opportunity Tax Credit (WOTC) the employer could claim under federal law, with specific Michigan rules for calculation and applicability to withholdings taxes.

Purpose and objective

  • Create a Michigan work opportunity tax credit for employers that are exempt from federal taxation under Section 501(c) of the Internal Revenue Code (i.e., qualified nonprofit organizations).
  • The credit is designed to incentivize hiring qualified employees who are members of targeted groups, aligning with federal WOTC provisions while applying it to Michigan withholding tax payments.

Key provisions and changes

  • Applicability and time frame

    • Effective for tax years beginning on or after January 1, 2026.
    • Applies to employers that are 501(c) organizations (federal tax-exempt nonprofits).

  • Credit amount and calculation

    • The credit against Michigan state withholding taxes is equal to 50% of the amount of the federal WOTC credit that the employer would be allowed to claim for the same tax year (or would have been allowed to claim if the federal WOTC credit were still in effect).
    • The calculation must exclude:
    • Amounts attributable to employees who are not “qualified employees.”
    • Any unused federal credits that are carried back or forward from another tax year (per federal section 39 rules).

  • Qualified employees and wages

    • A “qualified employee” is a Michigan resident who has been certified by the Michigan Unemployment Insurance Agency (UIA) as a member of a targeted group.
    • “Qualified wages” follow the definition of qualified wages under federal WOTC (i.e., wages that qualify for the federal credit, as applicable).

  • Targeted groups

    • A “member of a targeted group” is defined consistent with Section 51(d) of the Internal Revenue Code (WOTC criteria used by federal rules).

  • Administration and claiming the credit

    • Employers must claim the credit on the Michigan withholding tax return or report in a form and content prescribed by the Michigan Department of Treasury, on an annual basis (per the section referencing the annual return under section 711).

  • Limitations and refundability

    • If the credit allowed for the tax year exceeds the employer’s Michigan withholding tax liability, the excess is not refundable.

  • Enacting condition

    • The enactment is contingent on the passage of Senate Bill 995 (SB 995) of the 103rd Legislature; SB 994 does not take effect unless SB 995 is enacted into law.

Affected entities and beneficiaries

  • Primary beneficiaries: 501(c) nonprofit employers operating in Michigan.
  • Indirect beneficiaries: Qualified employees who are residents of Michigan and members of targeted groups, as their employment enables eligible wages to generate the credit for the employer.
  • State administration: Michigan Department of Treasury would administer the credit and require filings on the annual withholding return.

Timeline and procedural notes

  • Introduced and referred to the Senate Committee on Economic and Community Development on May 20, 2026.
  • The bill’s effective date is contingent upon SB 995 being enacted; without SB 995, SB 994 does not take effect.

Potential impact and considerations

  • The credit could reduce withholding tax payments for eligible nonprofit employers hiring qualified individuals from targeted groups.
  • By tying the credit to the federal WOTC framework, the measure relies on federal definitions and processes for determining qualified wages and targeted groups.
  • Administrative burden will include ensuring correct certification by the Michigan UIA and proper reporting on the annual tax withholding return.
  • Nonrefundable nature of the credit means any excess cannot be refunded, limiting the benefit to the amount of Michigan withholding tax liability.

This summary provides a high-level understanding of SB 994's intent, mechanics, and potential effects. For specific compliance details, consulting the bill language, department guidance, and SB 995 (which is a condition for effectiveness) would be necessary.

Compiled from official sources — confirm details with the bill’s official record.

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