On October 7, 2025, Michigan Gov. Gretchen Whitmer approved Public Act 24, budget legislation that advances Michigan’s Internal Revenue Code (IRC) conformity date from Jan. 1, 2018, to Jan. 1, 2025, for corporate and individual income tax purposes.1 The legislation also decouples from several important tax provisions enacted in the One Big Beautiful Bill Act (OBBBA),2 including the treatment of research and experimental (R&E) expenditures under IRC Sec. 174, the business interest expense limitation under Sec. 163(j) and bonus depreciation under Sec. 168(k).
Corporate income tax
Michigan historically has provided taxpayers with an option to use a static version of the IRC, or the current IRC. Since the 2018 tax year, which coincided with the advent of the federal Tax Cuts and Jobs Act,3 Michigan conformed to the version of the IRC as in effect on Jan. 1, 2018, but also gave taxpayers the option to use the IRC in effect for the current tax year. Public Act 24 advances Michigan’s IRC conformity date to Jan. 1, 2025 for corporate income tax purposes, while retaining the provision allowing taxpayers the option to use the IRC in effect for the tax year.4 While Michigan maintains general conformity to the IRC for corporate income tax purposes, the budget legislation decouples from several favorable business tax provisions that were enacted in the OBBBA.
For tax years beginning after Dec. 31, 2024, two major conditions apply to the calculation of federal taxable income for corporate income tax purposes. First, federal taxable income is calculated as if Secs. 168(k), 168(n) and 174A were not in effect.5 Second, Secs. 163(j), 174 and 179 apply as those provisions were in effect on Dec. 31, 2024.6 These provisions are explained in more detail below.
Prior to the enactment of the OBBBA, Michigan had followed the federal changes to Sec. 174 R&E expensing that became effective with the 2022 tax year based on its current conformity to the IRC, meaning that if taxpayers chose this conformity option, domestic and foreign R&E expenditures were required to be capitalized and amortized. Public Act 24 provides that Michigan will not conform to the immediate expensing of R&E expenditures under new Sec. 174A. Additionally, Michigan will continue to apply the pre-OBBBA capitalization and amortization rules in place under Sec. 174 as of Dec. 31, 2024. For tax years beginning in 2022 and thereafter, federal taxable income is calculated as if the OBBBA transition rules related to the application of Sec. 174A do not apply.7
Michigan will continue to decouple from the federal bonus depreciation provisions contained in Sec. 168(k), including the return to 100% bonus depreciation for federal income tax purposes. In addition, the state has declined to adopt the OBBBA’s expanded expensing threshold under Sec. 179. Rather, property that is immediately deductible for federal income tax purposes will continue to be capitalized and depreciated for Michigan corporate income tax purposes.
Michigan will also decouple from the new Sec. 168(n), which provides for a 100% special depreciation allowance for certain qualified production property. For Michigan corporate income tax purposes, taxpayers are required to add back any federal special depreciation claimed under Sec. 168(n).
Finally, the OBBBA expanded the calculation of adjusted taxable income (ATI) to include earnings before interest, taxes, depreciation and amortization (EBITDA) for purposes of computing the 30% business interest deduction limitation under Sec. 163(j). The budget legislation provides that Michigan will continue to follow the more limited EBIT calculation that was in place as of Dec. 31, 2024. Each member of a unitary business group is still required to compute its Sec. 163(j) limitation separately.
Individual income tax
Similar to the corporate income tax provisions, Public Act 24 likewise updates Michigan’s IRC conformity date for individual income tax purposes from Jan. 1, 2018, to Jan. 1, 2025, while giving taxpayers the option to use the IRC applicable to their current tax year.8 For tax years beginning after Dec. 31, 2024, federal taxable income is calculated as if the special depreciation provisions for qualified production property under Sec. 168(n) and the new R&E full expensing provisions under Sec. 174A were not in effect.9 Additionally, Michigan’s individual income tax provisions will continue to follow Secs. 163(j), 168(k), 174 and 179 as those provisions were in effect on Dec. 31, 2024.10 Therefore, for non-corporate taxpayers, Michigan continues to conform to Secs. 168(k) and Sec. 179 but maintains the previous limits on bonus depreciation and expensing of eligible assets prior to enactment of the OBBBA.
Commentary
With the enactment of Public Act 24, Michigan becomes the latest state to address changes to major federal tax provisions enacted by the OBBBA earlier this year. The state ultimately decided to decouple from no less than five major business tax provisions contained in the federal tax law in an effort to address an estimated $2 billion in revenue losses over the next five fiscal years.11 California, Colorado and Rhode Island are three of the states that have likewise responded to the OBBBA in rapid fashion by acting during legislative sessions in 2025, and other states are expected to take similar action either during special sessions in the coming weeks, or during their 2026 legislative sessions.
Michigan’s conformity to the IRC is unique in that it is a static conformity state by default, but allows taxpayers the option to select the current version of the IRC, effectively translating to rolling conformity. With a previous static conformity date of Jan. 1, 2018, taxpayers were able to consider opting into a version of the IRC that did not include the less favorable changes to Sec. 174 resulting in the capitalization and amortization of R&E expenses beginning with the 2022 tax year, and the transition to EBIT for purposes of calculating of the Sec. 163(j) business interest expense limitation. However, the ability to maintain conformity with such favorable provisions is now eliminated with an updated IRC conformity date of Jan. 1, 2025. Moreover, by decoupling from the taxpayer-favorable changes contained in the OBBBA beginning in the 2025 tax year, Michigan has essentially foreclosed the ability for taxpayers to take advantage of the immediate deduction of R&E expenses under Sec. 174A, the increased business interest expense limitation deduction under Sec. 163(j) and the special depreciation of certain production property under Sec. 168(n).
Michigan’s decision to decouple from the major OBBBA provisions may significantly impact corporate and non-corporate taxpayers doing business in the state beginning with the 2025 tax year. Taxpayers should consider the impact of such legislative changes on their Michigan tax liabilities for purposes of calculating 2025 estimated payments and financial statement reporting.
1 Mich. Pub. Act 24 (H.B. 4961), Laws 2025.
2 P.L. 119-21 (2025).
3 P.L. 115-97 (2017).
4 H.B. 4961, amending Mich. Comp. Laws § 206.607(6).
5 H.B. 4961, amending Mich. Comp. Laws § 206.607(1)(b)(i).
6 H.B. 4961, amending Mich. Comp. Laws § 206.607(1)(b)(ii).
7 H.B. 4961, adding Mich. Comp. Laws § 206.607(1)(c).
8 H.B. 4961, amending Mich. Comp. Laws § 206.805(5).
9 H.B. 4961, amending Mich. Comp. Laws § 206.805(1)(b)(i).
10 H.B. 4961, amending Mich. Comp. Laws § 206.805(1)(b)(ii).
11 H.B. 4961 Bill Analysis, Michigan Senate Fiscal Agency, Oct. 1, 2025.
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