How A City Income Tax Works

Now that Benton Harbor is getting its own city income tax, we thought we would check in with a couple of other Michigan cities that have municipal income taxes to see how it’s worked for them. James Freed is the city manager in Port Huron, where the income tax is also 1% for residents and 0.5% for non-residents who work in the city. He tells WSJM News collecting the tax is a simple process.

“A lot of the employers withhold it, like you would with any other tax, 1%,” Freed said. “Then, for the city of Port Huron, we have a very, very simple one page income tax form that you fill out. It’s very simple, and we collect it from both residents and non-residents.”

For residents who work outside the city, it’s up to the individual to estimate how much they owe and pay it. Elsewhere, Lapeer, a city closer to Benton Harbor in size, also has an income tax. City Manager Dale Kerbyson tells WSJM it’s a reliable chunk of revenue. The tax generates about $2.5 million each year for the city.

“That has been a very steady source of revenue to the city, unlike property taxes,” Kerbyson said.

Kerbyson tells us enforcement is a part of having a city income tax, and the city employs three people who manage the tax. Other places have the state treasury handle it. Both managers say the income tax is a way to ensure those who use city services each day but don’t live in the city are still contributing. Both Port Huron and Lapeer use their income tax revenue to support the general fund. In Benton Harbor, city leaders have said the revenue will be used for infrastructure including streets, sewers, and water mains. It could also be used for emergencies. You can find a list of Michigan cities that collect an income tax right here.