Michigan Decouples from Certain Federal OBBB Provisions

On October 7, 2025, Governor Gretchen Whitmer signed House Bill 4961 into law, enacting significant changes to the state’s tax code. The legislation, passed amid an ongoing government shutdown, formally decouples Michigan from several key business provisions of One Big Beautiful Bill (OBBB), but will conform with provisions on overtime and tipped wages.

Our State and Local Tax Practice breaks down “decoupling” and what it means for businesses in Michigan in terms of their state tax liability.

Conformity vs decoupling

“State decoupling” occurs when a state chooses not to follow certain provisions of the federal Internal Revenue Code (IRC) in determining its own taxable income. While most states conform to the IRC to simplify tax compliance, decoupling allows them to diverge on specific rules for state tax purposes. This affects only the calculation of corporate income tax (CIT) at the state level and does not change a taxpayer’s federal tax obligations. Federal taxable income remains determined by federal law, regardless of a state’s decision to decouple; however, additional planning may be needed at the state level.

Effect of Michigan decoupling on business owners

For business owners, Michigan’s decoupling results in them no longer having the leverage of the following OBBB federal provisions for calculating their state taxable income for tax years beginning after December 31, 2024:

• Bonus Depreciation: Businesses can no longer fully deduct 100 percent of eligible equipment costs in the first year for state tax purposes.
• Section 179 Expensing: Michigan retains pre-OBBB expensing limits, such as the lower cap of $1.25 million, even if federal limits are higher.
• Research & Experimental Expenses: Immediate deductions for these expenses are eliminated at the state level. Retaining the pre-OBBB capitalization and amortization requirements.
• Business Interest Deduction: Michigan businesses cannot claim the enhanced federal deduction.
• Section 168(n) Special Deduction: The 100 percent depreciation for certain qualified production property is eliminated for calculating state taxable income/liability

Below is an example of Michigan’s decoupling effect:

Example: Michigan Decoupling from OBBB’s Federal Bonus Depreciation

Facts: Taxpayer is a Michigan C-corporation that purchased and placed in service a new five-year MACRS property on March 1, 2025. The cost of the asset was $100K.

Federal Tax Effect: The OBBBA will allow 100 percent bonus depreciation for qualified property acquired and placed in service after January 19, 2025.

• Taxpayer claims 100 percent depreciation on the $100K asset in 2025.
• Federal Depreciation Deduction for 2025: $100K
• Federal Taxable Income Impact: Full $100K is deducted in 2025.

Michigan Tax Effect: Michigan has decoupled from IRC Section 168(k) bonus depreciation. Thus, when the C-corporation calculates its Michigan CIT, federal taxable income will be calculated as if Section 168(k) were not in effect. This adjustment for bonus depreciation requires an addback of the federal bonus depreciation.

Taxpayer CIT taxable income calculation:

• Begins with federal taxable income:     $100K
• Adds back bonus depreciation:        +$100K
• Subtracts regular MACRS depreciation:     -$20K
• Taxpayer’s CIT taxable income:        $180K

Navigating uncertainty surrounding Michigan’s OBBB decoupling

With Michigan decoupling from several significant provisions of the OBBBA, it remains certain that proactive planning is critical for avoiding unnecessary tax liability. Our tax advisors specialize in guiding clients through these kinds of state and federal tax inconsistencies. If you are uncertain about how these changes will affect your business, fill out the form on this page to work with a qualified tax professional.