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SB 125

Relating to exemption of health care receipts from corporate activity tax; prescribing an effective date.

2025 Regular Session

SB 125 would let Michigan workers deduct overtime pay from taxable income, lowering state income tax for overtime earners; requires payroll withholding/reporting changes.

In committee upon adjournment.
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WeVote Research Nonpartisan
Bill Summary · SB 125

Summary — SB 125 (Michigan)

Title: Individual income tax: deductions; deduct overtime compensation from taxable income; provide for. Amends secs. 30, 701, 703 & 711 of 1967 PA 281 (MCL 206.30 et seq.).
Introduced: January 23, 2025
Status: Referred to Committee on Finance, Insurance, and Consumer Protection

Main purpose

SB 125 would change Michigan’s individual income tax law to allow taxpayers to exclude (deduct) overtime compensation from taxable income. The change is intended to reduce state income tax liability for workers who earn overtime pay and to align withholding and reporting rules with the new deduction.

Key provisions (as described in bill header)

  • Amends the Income Tax Act of 1967 (MCL 206.30 et seq.), specifically sections 30, 701, 703 and 711.
  • Creates a subtraction or deduction from “taxable income” for overtime compensation paid to an employee (the bill title indicates overtime pay is to be deducted).
  • Makes related changes to withholding and employer reporting provisions so that payroll withholding and information returns conform to the new tax treatment of overtime pay.
  • Likely includes definitional language (what counts as “overtime compensation”), timing rules (which tax years apply), and procedures for claiming the deduction on returns or via withholding adjustments.

Note: The full bill text is not reproduced here; the summary uses the title and statute references to describe the bill’s intent and scope.

Who would be affected

  • Employees who receive overtime pay (hourly workers and other employees who earn overtime premiums) — these taxpayers would potentially pay less in state income tax on the portion of their pay that is overtime.
  • Employers and payroll processors — would need to modify payroll withholding calculations, reporting, and possibly payroll systems to separate overtime compensation from regular taxable wages (if the bill requires employer withholding changes).
  • State Treasury/Department of Treasury — would experience changes in income tax collections and would need to update withholding schedules, forms, and guidance.
  • State budget — would likely experience a reduction in income tax revenue proportional to overtime wages claimed as deductions (magnitude depends on uptake and overtime levels).

Fiscal and administrative considerations

  • Revenue impact: The bill would reduce state income tax revenue to an extent that depends on how many taxpayers claim the deduction and the amount of overtime paid statewide. No fiscal note is provided in the material supplied here.
  • Administrative: Employers may face implementation costs to change payroll systems and withholding. The Department of Treasury would need to issue guidance and update withholding tables and tax forms.

Procedural / timeline

  • Introduced January 23, 2025.
  • Referred to the Michigan Senate Committee on Finance, Insurance, and Consumer Protection (next steps: committee hearings, possible amendments, committee vote; if reported out, floor consideration and then transmission to the House).
  • Interested parties should monitor committee activity for hearings, fiscal notes, and amendments and review the full bill text and any legislative analyses for precise definitions and fiscal estimates.

If you want, I can:
- Locate and summarize the full bill text (once available), or
- Draft a short fiscal-impact checklist for stakeholders (payroll, employers, Treasury).

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

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