The Latest on East Lansing’s Income Tax – Including How to Prove You Don’t Owe It

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East Lansing Income Tax Administrator Jill Rhode at a meeting of the Downtown Development Authority on Aug. 22, 2019.

The City of East Lansing is now formally acknowledging that non-residents whose East Lansing-based jobs shifted to at-home work for the 2020 shutdown do not owe East Lansing income tax for the months during which they were working remotely outside the City.

Local income tax in Michigan is based on where you’re actually working, not where your employer is located. That means that if, for example, you’ve been working for MSU from your home in Meridian Township, you don’t owe East Lansing income tax for the months you’ve been working from home. (Meridian Township has no income tax.) If you’ve been working for MSU from your home in Lansing, you owe Lansing, not East Lansing, tax for the income earned in those months. (Lansing does have an income tax.)

But the City of East Lansing is demanding nonresidents in this location-shifted position fill out a special form and also send in a letter from their supervisors backing up their claims that they’ve been working in another city. And you still have to pay income tax for the period of 2020 when you were working in East Lansing.

On Friday, Jan. 22, the City issued a press release indicating that, for nonresidents who would have normally been working in East Lansing, “an additional form must be filled out and submitted with the individual’s return. If preparing a return through a software program, the form will be called CF-COV. If preparing a return by hand, the form is called EL-COV and is available at  www.cityofeastlansing.com/incometax.”

But that’s not all: “An employer letter from a direct supervisor must also be submitted with the return verifying the information. This letter should be on the employer’s letterhead.”

The alternative to all this documentation, the City says, is to just go ahead and pay East Lansing the non-resident income tax.

Given that Michigan State University is East Lansing’s biggest employer, and given how many jobs there shifted to at-home/out-of-East-Lansing for most of 2020, the shut-down could have a significant impact on the City of East Lansing’s bottom line, particularly as MSU’s shut-down appears likely to persist for over a year.

Nevertheless, in September 2020, City Manager George Lahanas suggested that because the new East Lansing income tax was bringing in about 33% more than originally anticipated, the City has a comfortable cushion to withstand the economic impact of the shut-down on the income tax.

What happens to the tax status of East Lansing residents whose jobs shifted to home? If their jobs had been in East Lansing (e.g., on MSU’s campus), nothing really changes, because they owed tax to East Lansing at the resident (1 percent) rate on their earned income.

If an East Lansing resident’s job was in another Michigan city that has an income tax (like Grand Rapids, Lansing, or Flint) and their job shifted to home in East Lansing, then they will not owe non-resident tax on that job in the other city. They’ll owe East Lansing the income tax on those earnings.

East Lansing residents who work in another city with an income tax “are entitled to a credit for the taxes they pay to the other municipality,” because in Michigan you can’t be taxed on the same income by two cities. But, the City of East Lansing says, residents who pay income tax to other Michigan cities “will need to submit a copy of the other municipality’s tax return when filing their East Lansing return to verify the amount of the credit.”

Don’t assume that just because you have an East Lansing mailing address, you live within the City limits and owe resident-rate taxes. What the postal service calls “East Lansing” does not cover the same area as the City’s legal borders. To figure out if you owe resident-rate tax, and to figure out if your job counts as being in East Lansing, you can use an interactive map at the City’s income tax website.

Also note that unemployment benefits may be taxed by the IRS, but are not taxed by the City of East Lansing. Says the City’s press release, “For 2020, if an individual is reporting taxable unemployment benefits on their Federal return, they should be excluded in Column B of the City return.”

Friday’s press release, which came in the name of East Lansing Income Tax Administrator Jill Rhode, also reminded that, “If an individual owes more than $100 in income taxes [to East Lansing] for the year, they are required to pay throughout the year. For most, this happens by their employer withholding from their paychecks.” Others can make estimated quarterly payments.

Got questions? Contact the East Lansing Income Tax office at (517) 319-6862 or email the staff there at incometax@cityofeastlansing.com.  

Note: This article was amended slightly on Jan. 26 because the original article incorrectly suggested that there are no Michigan cities with income tax rates above 1 percent.

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