By Beth LeBlanc, Craig Mauger, MediaNews Group
With the dawn of the new year, Michigan residents will see changes in the way they’re taxed at the gas pump, workers will experience an uptick in the minimum wage and marijuana businesses will pay a new 24% wholesale tax levied on their product.
Amid a record low number of new laws — just 74 signed into law over the past year — the fuel tax shifts and the minimum wage hike are some of the biggest policy changes to hit pocketbooks Jan. 1 as bills passed during 2025 begin to take effect in Michigan.
The changes to the gas and marijuana taxes are part of an overall road funding deal agreed to by the Legislature and Gov. Gretchen Whitmer in October. The agreement is expected to generate roughly $1.8 billion annually for roads and bridges in Michigan.
The minimum wage change was part of a February compromise that sought to curb the effects of a state Supreme Court ruling that would have required drastic increases in the state’s minimum wage and tipped minimum wage, and expansions of paid sick leave policies.
Here are the ways some of those changes in tax and wage policy will affect the state in 2026:
Minimum wage increases
Michigan’s standard minimum wage and the minimum wage for tipped workers will both increase on Thursday because of bills Whitmer, a Democrat, signed into law in February.
The traditional minimum wage will increase from $12.48 to $13.73 per hour, a 10% increase.
For tipped workers, the minimum wage will rise from $4.74 to $5.49 an hour, a 16% increase.
In a 4-3 decision in July 2024, the Michigan Supreme Court ruled that six years earlier, in 2018, Republican lawmakers had unconstitutionally blocked two ballot proposals — one to impose earned sick time requirements and one to hike the minimum wage and to eliminate the lower tipped wage.
GOP lawmakers who controlled the Legislature at the time had adopted the proposals to keep them from going before voters. They then changed them after Election Day to significantly weaken them and reduce the cost on businesses.
The high court determined the proposals should become law as initially written on Feb. 21, 2025.
But lawmakers in early 2025 decided to intervene to speed up the increases in the traditional minimum wage, but only gradually boost the tipped wage to 50% of the standard minimum wage in 2031, instead of doing away with it.
The incremental changes, which began when the bills became law in February, continue to take effect with the new year on Thursday.
The minimum wage changes were part of the first bill Whitmer signed into law in 2025. The policy, sponsored by Sen. Kevin Hertel, D-St. Clair Shores, aimed to slow down large increases in the minimum wage for tipped workers set by the court order.
The tipped minimum wage was slated, in the ruling, to increase from $4.01 an hour in early 2025 to $7.97 an hour on Feb. 21, 2026.
“It’s a compromise that allows that system to continue, and I think saved a lot of businesses,” Hertel said Wednesday.
John Sellek, a spokesman for Save MI Tips, which advocated for keeping the lower tipped minimum wage, said Wednesday that Michigan’s restaurant servers and bartenders had fought for the tipped wage system because they already earn far beyond the minimum wage through tips.
“We appreciate the compromise reached last February,” Sellek said. “Our concerns remain on the impacts, which may include fewer jobs and higher menu prices for consumers.”
Gas tax structure shifts
For Michigan drivers, the fuel tax levied on each gallon of gas will increase from 31 cents to 52.4 cents per gallon starting Jan. 1 under legislation passed by lawmakers in October.
But the fuel tax increase will be offset, to some extent, by the accompanying elimination of the 6% sales tax on gasoline sales, also taking effect on New Year’s Day. While there will be some increase because of the current cost of gas, the bump will be small enough that most drivers are unlikely to notice much change at the pump.
Because state law currently ties increases in the fuel tax to increases in the electric vehicle and hybrid gas-electric vehicle registration fees, those fees are also expected to increase. The registration fees for EVs will rise $100, from $60 to $160, and the registration fees for hybrids will climb about $50, from $30 to $80, according to a House Fiscal Agency analysis.
The changes are part of an overarching road funding plan that realigns which taxes support the state’s roads and bridges and, ultimately, seeks more tax revenue for fixing and maintaining the infrastructure.
Prior to the change, lawmakers had long sought a reform in the way taxes are assessed at the pump so all taxes paid on gas go toward roads. Previously, the 6% sales had been diverted to several different funds, including the state K-12 education fund. With the switch from a sales tax to a higher per-gallon fuel tax, the state is seeking to ensure that all gasoline taxes are targeted at roads.
The Michigan Treasury Department described the new tax system on its website as a simplification of how fuel is taxed and argued it’s “not a price increase.”
But the math is a little more complicated than that. Because the state is switching from a percent tax to a flat tax, the actual savings or cost to drivers depends on the price per gallon, which can fluctuate throughout the year, said Mark Griffin, president of the Michigan Petroleum Association and the Michigan Association of Convenience Stores.
For example, for a driver visiting a gas station on Dec. 31, a gallon of gas that costs $2.80 a gallon would include about 63 cents a gallon in taxes: An 18.4-cent federal fuel tax, the 31-cent-per-gallon state fuel tax and what would amount to about 14 cents per gallon sales tax, Griffin said.
On Jan. 1, that same gallon costing $2.80 will include about 71 cents in taxes per gallon: the 18.4-cent federal fuel tax and the 52.4-cent state sales tax.
“Now it’s a fixed number that will stay fixed for a year; that alone was the primary reason we supported this,” Griffin said.
He noted that the association had long lobbied for a shift from the sales tax to a higher flat fuel tax, in part to avoid the hassle of calculating a sales tax on gas prices that can change multiple times a day.
“It was an accounting nightmare,” Griffin said.
New tax on marijuana
Another key element of the roads package passed in October is the 24% wholesale tax on marijuana, which is expected to generate about $420 million in additional revenue annually to be put toward roads.
The tax will apply to the first sales or transfers from a marijuana establishment, such as a processor, to the marijuana retail licensee.
It also applies to vertically integrated, “seed-to-sale” marijuana companies that cultivate, process and sell their marijuana; for those companies, the tax would be levied at the point the marijuana product is packaged for retail and would be based on the average wholesale price of marijuana.
The wholesale tax, which passed the Republican-controlled House and Democrat-led Senate in October, was almost immediately challenged in court because it did not secure the required supermajority support from lawmakers, as is usually required for a policy amending a voter-approved ballot proposal.
Michigan Court of Claims Judge Sima Patel upheld the law against the legal challenge earlier this month, finding that the ballot proposal recognized “other taxes” such as the wholesale tax. But Patel said there “remain questions of fact” regarding whether the tax interferes with the intent of the 2018 ballot proposal, which created a 10% excise tax to keep retail prices reasonable and the illicit market in check.
Shortly after Patel’s decision, the Michigan Cannabis Industry Association appealed to the Michigan Court of Appeals. The case is still pending.
In the meantime, the industry has been preparing for the onset of the tax, shifting as many products as it could from growers and processors to retail before the wholesale tax goes into effect, said Robin Schneider, executive director for the Michigan Cannabis Industry Association.
That shift of product should ensure there are no immediate price increases for customers, she said, but the long-term prospects for growers and processors under the new tax look bleak.
“We’ve already seen a lot of job layoffs in anticipation of the tax taking effect because the growers and processors cannot absorb the 24% tax,” Schneider said. “It looks like it will be a really messy transition.”
