Two things decide whether a job in Michigan makes you money: getting the license your work needs, and setting aside the right tax. Michigan licenses its contractors and taxes their profit, so both are worth getting right before you take work on.
Each section below points to a tool that runs your exact numbers for Michigan.
Tax in Michigan
Michigan has a flat 4.25% state income tax on top of your federal taxes. A flat rate makes the math simple: the same percentage applies whatever you earn. You still owe federal income tax and self-employment tax on your profit as well, and you make estimated payments to both the state and the IRS through the year.
On sales tax, Michigan follows the usual rule for the trades: your labor is not taxed, and you pay sales tax on your materials when you buy them rather than charging it to the customer.
Work out what to hold back on the Tax Set-Aside Calculator, which runs the federal and self-employment numbers for Michigan.
Getting paid: liens and retainage
A mechanic's lien is the tool that actually gets a Michigan contractor paid, and in Michigan you generally have to record it within 90 days of your last day of furnishing labor or material. Miss it and you lose the lien, so the dates matter.
Enforcing it has its own clock. 1 year from the date the claim of lien was recorded. Work out your dates on the Lien Deadline tool, and if they are close, get an attorney to confirm them against the statute (MCL §§570.1111(1), 570.1109(1), (2), (6), (7), 570.1117(1)).
On money held back as retainage, here is where Michigan lands:
- Private work: No statutory cap on private work in Michigan. Whatever your contract says governs, so read the withholding clause.
- Public work: 10% of the dollar value of all work in place, taken from each progress payment. Nothing may be held at all.
- Release: Private: no number of days is set at all. It falls due on whatever the contract says. Public: no number of days is set at all. It falls due on the final progress payment.
- Prompt pay: A contractor may add reasonable interest to the next payment request if a public agency misses a progress payment. Retainage itself must sit in a separate interest-bearing account, and the interest comes back to you with it.
Whether the rule covers your job at all is a separate question from the percentage. Public: a public agency, meaning the state, a county, city, township, village, assessment district or other political subdivision. School districts, junior and community colleges, MSHDA and municipal electric utilities are expressly excluded from the definition and so from this cap.
And the step-down is not the same thing as a right. Michigan cuts the rate to 0% when work is 50% in place. That drop is automatic once the condition is met, so it is money you are entitled to have back before the end of the job. Expressly reversible: the agency may keep retaining up to 10% of the value of work above the halfway mark if it determines you are not making satisfactory progress, or for other specific cause relating to your performance. Money already held is not released at the halfway mark.
Check the Retainage Calculator before you sign a contract that holds back more.
Free Michigan retainage letters
Three letters written for Michigan's rules, with the state's own release clock and its statutory citation already in them. Fill one in on screen and download it as a PDF or a Word file.
- Retainage Release Request (Michigan), for when the job is done and the money has not come back
- Retainage Overdue: Demand for Payment (Michigan), for when the release date has passed and nothing has arrived
- Retainage Held Above the Cap: Challenge Letter (Michigan), for when more is being held than the state appears to permit
Do you need a license in Michigan?
Michigan requires a state contractor license to take building work on. The threshold that triggers it: Residential builder or M&A license at $600 or more. Michigan has NO statewide license for COMMERCIAL work. Working unlicensed when your job needs a license is the expensive mistake here. Article 24 is scoped exclusively to a RESIDENTIAL STRUCTURE, defined as a detached one- or two-family dwelling or a townhouse of no more than three stories. There is no commercial GC license class anywhere in Chapter 339. 2020 PA 341 narrowed that definition effective 30 Dec 2020, retroactive to 1 Jan 2019. The license comes from LARA. Michigan accepts the NASCLA commercial exam, useful if you work across state lines.
Trade licenses for electrical, plumbing and HVAC are usually separate and often required even where a GC license is not. See what applies to your trade on the Contractor License Checker.
Building codes and permits
Michigan adopts its building codes statewide, so the rules travel with you across the state. Editions still move, so confirm yours with the building department before you price a job.
- Homes: 2015 operative
- Electrical: 2023, one edition statewide including one- and two-family dwellings (R 408.30801, effective 12 March 2024); the residential code's own electrical chapters are 2014-derived text but send anything they do not cover to the 2023-based Michigan Electrical Code
- Energy: 2015 for one- and two-family dwellings, frozen by court order / 2021 for commercial since 22 April 2025
- Plumbing: 2021 IPC as Part 7 for commercial, with residential plumbing folded into the 2015 Residential Code
Michigan does not run one edition across the whole job, and the energy code is where it splits: 2015 for one- and two-family dwellings, frozen by court order / 2021 for commercial since 22 April 2025. That matters more than the number itself. If you work on houses, the residential edition is your book, and the single figure quoted in most adoption charts is the commercial one.
Michigan's residential code is frozen by litigation. The 2021 rules were filed on 1 May 2025 and were due to take effect that August, but a Court of Claims stipulated order of 7 July 2025 in Home Builders Association of Michigan v. LARA halted them, so the 2015 Residential Code and its 2015 energy chapters still govern a house. Commercial work was not affected and moved to a 2021 commercial energy code in April 2025, so the energy requirements for a house and for a shop on the same street are six years apart. Residential plumbing sits inside the Residential Code rather than under the separate plumbing part. Electrical is simpler than it is often reported: Michigan runs one edition, the 2023 NEC, and it reaches houses as well as commercial work. You will see a 2014 edition quoted against Michigan for one- and two-family dwellings. That figure is the vintage of the electrical chapters the residential code borrowed from the model code, not a separate Michigan adoption, and those chapters send anything they do not cover to the 2023-based Michigan Electrical Code. A rulemaking to adopt the 2026 NEC is open, with a public advisory meeting on 27 August 2026.
Source: Michigan LARA Bureau of Construction Codes, Code Books and Currently Open Rules pages, under the Stille-DeRossett-Hale Single State Construction Code Act, 1972 PA 230 (MCL 125.1502 et seq.); Court of Claims stipulated order of 7 July 2025 in Home Builders Association of Michigan v. LARA; electrical read against Mich. Admin. Code R 408.30801 (2023 NEC second printing, eff. 12 March 2024), R 408.30873 (one- and two-family dwellings within Part 8) and R 408.30536 (amending IRC E3401.1 to E3401.3 to route uncovered work to R 408.30801 to R 408.30880, services capped at 120/240V 0-400A single phase). We have not yet read this row against Michigan's own adopting authority, so confirm the edition locally before you rely on it.
Check a specific job on the permit tool.
Pay and workers' comp
The minimum wage in Michigan is $13.73 an hour. That is the floor for anyone you put on the books, and it is worth confirming against the state labor department each year because several states step their rate mid-year. Check a rate on the minimum-wage tool.
Workers' comp rates in Michigan are not published as a single figure; they turn on your trade's class code and your payroll. Get a realistic range on the Workers' Comp Estimator, then get a real quote.
If a client will not pay
If a client will not pay, you can sue for up to $7,000 in Michigan's District Court, Small Claims Division and lawyers are not allowed, which keeps it a level playing field. That covers most unpaid-invoice disputes for a small outfit; a bigger claim goes to regular civil court where you will probably want an attorney. Walk through whether filing is worth it on the Small Claims checker.
The clock runs the other way too: a client generally has 6 years to sue you over the work under a written contract in Michigan, and there is no absolute cutoff, so your exposure turns on when a defect is found. Work out your exposure on the Warranty & Claim Deadline tool.
Common questions
How much state income tax will I pay in Michigan?
Michigan has a flat 4.25% state income tax on your profit, on top of federal income tax and self-employment tax. Use the Tax Set-Aside Calculator to see what to hold back.
Do I need a contractor's license in Michigan?
Yes. Michigan requires a state contractor license. The threshold: Residential builder or M&A license at $600 or more. Michigan has NO statewide license for COMMERCIAL work. It is issued by LARA.
What is the small claims limit in Michigan?
You can sue for up to $7,000 in Michigan's District Court, Small Claims Division. The filing fee is typically $30 to $70. Larger claims go to regular civil court.
How long do I have to file a mechanic's lien in Michigan?
Generally 90 days from your last day of furnishing labor or material. Miss it and you lose the lien. Work your own dates out on the Lien Deadline tool.
How much retainage can be held back in Michigan?
Public: 10% of the dollar value of all work in place, taken from each progress payment. Public, transportation: nothing may be held at all. The condition on it, in the statute's own terms: Public: a public agency, meaning the state, a county, city, township, village, assessment district or other political subdivision. School districts, junior and community colleges, MSHDA and municipal electric utilities are expressly excluded from the definition and so from this cap. Run your own figure on the Retainage Calculator.
Are there free Michigan contract and payment forms?
Yes. This page links 3 retainage letters written to Michigan's own release clock and carrying its statutory citation. They are free, there is no sign-up, and you fill one in on screen and download it as a PDF or a Word file.
What is the minimum wage in Michigan?
$13.73 an hour in Michigan, above the federal $7.25. Several states step their rate mid-year, so confirm it before you set a payroll.
The honest bit
These are the 2026 rules for Michigan as they stood when this guide was written, and they change: legislatures move thresholds, deadlines and rates every year. Treat this as general guidance to point you in the right direction, not legal, tax or financial advice. Verify anything you rely on at the source (the IRS, the Michigan tax and licensing agencies, and your local building department) or with a professional. Where Michigan does something unusual, the detail is called out above rather than glossed over.
Related: Tax Set-Aside Calculator · Mechanic's Lien Deadline · Contractor License Checker · Small Claims checker · Working in Your State
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Sources
- Michigan contractor licensing authority · Michigan contractor licensing authority. Who must hold a contractor or trade license in Michigan, and the licensing instrument (MCL 339.2403(f))
- Michigan statutes (legislature.mi.gov) · Mechanics lien notice, filing and enforcement deadlines in Michigan: MCL §§570.1111(1), 570.1109(1), (2), (6), (7), 570.1117(1). Verified against this authority on 2026-08-12.
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