Exemptions from the Flow-Through Withholding

 

FTEs that are Exempt

Publicly Traded Partnerships and disregarded entities are not required to withhold on their members under Flow-Through Withholding. For purposes of Flow-Through Withholding, “publicly traded partnerships” means that term as defined under section 7704 of the Internal Revenue Code. This exemption from the requirements of Flow-Through Withholding applies to publicly traded partnerships that are treated as corporations as well as those that are treated as partnerships under IRC 7704(c). An entity is disregarded for purposes of FTW if it is a disregarded entity for federal income tax purposes.

Non-Resident Individual Exemptions

An FTE is not required to withhold on a nonresident individual if:

  • The income available for distribution consists entirely of income exempt from the individual income tax; or
  • The aggregate income available for distribution of all nonresident individual members subject to withholding is less than $1,000 for any quarter.

MBT Election by a Member of the FTE

An FTE is not required to withhold on a member that elects to file and pay the Michigan Business Tax for the tax year at issue under MCL 206.680 or MCL 208.1500.

Exemption for Members that are corporations when the FTE Makes MBT Election

An FTE is not required to withhold on behalf of a corporation that is not in a unitary business group with the FTE if the FTE makes a valid election under MCL 208.1500 to continue to file a return and pay the tax under the MBT.

Opt-Out Exemption

Members of an FTE may exempt an FTE from the FTW requirements by filing an exemption certificate with the FTE. Public Act 15 of 2013 extended this opt-out provision, which was previously limited to corporations, to all FTE members other than nonresident individuals. If an exemption certificate is received by the FTE, then it is exempt from the FTW requirements pertaining to that member for the entire tax year. For more information, see FAQs below.