Neuronal dysfunction has been extensively studied as a central feature of neurodegenerative tauopathies. However, across neurodegenerative diseases, there is strong evidence for active involvement of immune cells like microglia in driving disease pathophysiology. Here, we demonstrate that MAPT mRNA and tau protein are expressed in microglia in human brains and in human induced pluripotent stem cell (iPSC)-derived microglia like cells (iMGLs). Using iMGLs harboring the MAPT IVS10 + 16 mutation and isogenic controls, we demonstrate that a tau mutation is sufficient to alter microglial transcriptional states. We discovered that MAPT IVS10 + 16 microglia exhibit cytoskeletal abnormalities, stalled phagocytosis, disrupted TREM2/TYROBP networks, and altered metabolism. Additionally, we found that secretory factors from MAPT IVS10 + 16 iMGLs impact neuronal health, reducing synaptic density in neurons. Key features observed in vitro were recapitulated in human brain tissue and cerebrospinal fluid from MAPT mutations carriers. Together, our findings that MAPT IVS10 + 16 drives cell-intrinsic dysfunction in microglia that impacts neuronal health has major implications for development of therapeutics for tauopathies.