City of Detroit Withholding Tax: Rates, Form 5527, and Filing

Detroit withholding tax is a city income tax that employers with a Detroit presence must deduct from employee paychecks: 2.4 percent from residents on all wages, and 1.2 percent from nonresidents on wages earned for work physically performed inside the city. Employers remit the funds to the Michigan Department of Treasury through Michigan Treasury Online (MTO), which administers collection on behalf of the city.¹²

Which Employers Have to Withhold

Any employer that does business or maintains an office inside Detroit’s city limits must withhold. Headquarters location doesn’t matter; what matters is whether the business has a physical presence or conducts activities in the city. A company already registered for Michigan state taxes does not go through a separate registration for Detroit withholding, and returns are filed under the Federal Employer Identification Number.²

Withheld money is held in trust for the city. An employer that was required to withhold but failed to do so stays personally liable for the unpaid tax, and the employee later paying their own bill does not release the employer from penalties and interest.

Residents Versus Nonresidents

Residents owe Detroit tax on every dollar of compensation, no matter where the work happens. Live in Detroit and commute to a suburban job, and your employer still withholds Detroit tax on your full wages.¹

Nonresidents owe tax only on wages for work physically performed inside Detroit, and only when Detroit is their “predominant place of employment.” For a nonresident who splits time between Detroit and elsewhere, the employer allocates by day count: days worked in Detroit divided by total days worked, applied to total wages.³ Vacation pay, holiday pay, sick pay, bonuses, and severance are allocated the same way.

The Predominant Place of Employment Test

This is where payroll mistakes cluster. Detroit is a nonresident’s predominant place of employment only when both of these are true:

The nonresident earns a greater share of compensation in Detroit than in any other Michigan city with an income tax, excluding their city of residence.
That share is 25 percent or more of total compensation from the employer.

If either condition fails, the employer has no obligation to withhold Detroit tax for that nonresident, even if the employee occasionally works in the city.⁴ A nonresident who spends 20 percent of their time at a Detroit job site falls below the threshold and is exempt from withholding entirely.

Remote Work

Nonresidents who telecommute from a location outside Detroit are not subject to Detroit tax on those remote wages. Only work physically performed in the city counts. For a nonresident splitting time between Detroit and a home office elsewhere, only the Detroit days are taxable.⁵

The Michigan Department of Treasury recommends employees keep a work log of days worked outside the city, and that employers provide a letter on company letterhead confirming the dates employees were directed to work remotely. Neither document is filed with the return, but both should be kept in case of an audit.⁵ Without a contemporaneous log, a nonresident challenging an employer’s allocation on a refund claim has little to work with.

Current Rates

The rates have been in place since 2013:⁶

Residents: 2.4 percent of qualifying compensation
Nonresidents: 1.2 percent of qualifying compensation
Corporations: 2.0 percent

Detroit does not use a special supplemental rate for bonuses, commissions, overtime, or severance. All compensation is withheld at the standard rate, applied to gross pay after subtracting the value of claimed exemptions.¹

For a Detroit resident who also works in another Michigan city that levies its own income tax, the Detroit withholding rate is reduced by the rate of the other city. That offset matters for residents commuting to cities like Pontiac, Grand Rapids, or Lansing.

Form 5527 (DW-4) and Exemptions

Every employee subject to Detroit withholding completes Form 5527, known as the DW-4. It tells the employer the employee’s residency status and the number of exemptions claimed.⁷ Only one DW-4 is needed per employee, even when the employee is subject to withholding in two Michigan cities.⁸

Exemptions follow federal rules for the employee, spouse, and dependents, with one difference: the additional withholding allowances available on Schedule A of the federal W-4 are not permitted for Detroit.⁹ Each exemption reduces taxable income by $600 per year.⁸

If an employee never submits a DW-4, the employer must withhold at the full resident rate with zero exemptions.⁸ Employees should update the form when their residency or family situation changes, since a move into or out of Detroit shifts the applicable rate.

A narrower carve-out: residents of a Michigan Renaissance Zone within Detroit can be fully exempt from the city tax. The resident files a Statement of Eligibility with the city, and if approved, receives a Certificate of Qualification to give the employer so withholding stops.⁸

Filing, Payments, and Annual Reconciliation

Employers file through Michigan Treasury Online. Monthly returns and payments are due by the 15th of the month following the month the tax was withheld. A quarterly schedule also exists, with returns due the 15th of the month after each calendar quarter.² Most employers file monthly; confirm which schedule applies to your account on MTO or by contacting the Department of Treasury at 517-636-6925.

At year end, employers file Form 5321, the City of Detroit Income Tax Withholding Annual Reconciliation. For tax year 2026, the reconciliation is due February 28, 2027.¹⁰ No extension is available.¹¹ The reconciliation matches the total withheld during the year against the monthly or quarterly returns already filed; any discrepancy has to be resolved then. Employers also furnish W-2s showing Detroit withholding in time for individual filing season.

Penalties and the Safe Harbor

Consequences for falling behind stack quickly:¹²

Late payment: 1 percent per month on the unpaid balance, capped at 25 percent total.
Underpayment due to negligence: $10 or 10 percent of the shortfall, whichever is greater.
Intentional disregard: $25 or 25 percent of the shortfall, whichever is greater.
Fraud: 100 percent of the delinquency.
Criminal: failing to file or pay is a misdemeanor, punishable by a fine up to $500, up to 90 days in jail, or both.

One safe harbor is worth knowing. If the employer pays at least 70 percent of estimated taxes owed or at least 70 percent of the prior year’s liability, no interest or penalty applies to the remaining balance.¹² The 70 percent threshold is generous by tax-authority standards, but it only shields the civil penalty. The criminal misdemeanor provision has no safe harbor.

1
Michigan Department of Treasury. 2025 City of Detroit Income Tax Withholding Guide
2
Michigan Department of Treasury. City of Detroit Employer Withholding Tax
3
City of Detroit. City of Detroit Income Tax Individual Return – Non-Resident
4
Michigan Department of Treasury. 2022 City of Detroit Income Tax Withholding Guide
5
Michigan Department of Treasury. Telecommuting
6
City of Detroit. Income Tax Information
7
Michigan Department of Treasury. 2025 Employer Withholding Tax
8
City of Detroit. Employer Withholding Instructions City of Detroit Income Tax
9
City of Detroit. Employee’s Withholding Certificate for City of Detroit Income Tax
10
Michigan Department of Treasury. 2026 City of Detroit Income Tax Withholding Annual Reconciliation
11
Michigan Department of Treasury. Filing a Detroit CIT Annual Return
12
City of Detroit. Business Income Tax