Flow Through Withholding FAQs
Who is required to pay Flow-Through Withholding?
Flow-Through Withholding Update
Under Public Act 158 of 2016, Flow-Through Withholding (Form 4918) is no longer required for flow-through entities (FTEs) with tax years beginning after June 30, 2016. Treasury will no longer support the processing of forms or withholding payments for FTEs with tax years beginning after that date. For FTEs with tax years beginning before July 1, 2016, a full year’s withholding payments and annual return should be filed.
When are Flow-Through Withholding returns and payments due?
Flow-Through Withholding returns and payments are due to the Department on April 15, July 15, and October 15 of the flow-through entity's tax year and January 15 of the following year. MCL 206.703(3), (4), and (5). If the flow-through entity is not a calendar year taxpayer then the flow-through entity will substitute the appropriate due dates in the flow-through entity's fiscal year that correspond to the due dates of a calendar year flow-through entity. MCL 206.703(3), (4), and (5).
If the flow-through entity is required to withhold, then the flow-through entity must also file, in addition to the 4 quarterly returns, an Annual Reconciliation Return, Form 4918, due to the Department no later than February 28 for calendar year flow-through entities or the last day of the second month following the end of the flow-through entity's federal tax year for fiscal year flow-through entities. MCL 206.711(1).
There are no extensions available for the Annual Reconciliation Return. However, fiscal year flow-through entities will be granted an administrative automatic extension to February 28, 2013 for their 2012 fiscal year Annual Reconciliation Return only. An extension of time to file does not extend payment due dates. If the flow-through entity owes a Flow-Through Withholding payment in addition to those submitted with its quarterly returns, it must remit that payment to the Department no later than the last day of the second month following the end of its federal fiscal tax year. The flow-through entity should remit this payment to the Department with a letter indicating its federal tax year and stating that this is an extension payment for the 2012 Annual Reconciliation Return. Quarterly returns and payments are still due on a quarterly basis as explained above.
May a member of a flow-through entity “opt out” of flow-through withholding? And if so, how does it do so?
Yes, MCL 206.703(16) permits a member of a flow-through entity, other than a nonresident individual, to exempt itself from flow-through withholding by a flow-through entity by filing an exemption certificate with the flow-through entity. The exemption is good for the member's entire tax year regardless of when the exemption certificate is provided to the flow-through entity as long as the flow-through entity receives it within its tax year.
Members, other than a nonresident individual, may use Form 4912 Michigan Certification of Exemption for Flow-Through Withholding Payments to opt out of flow-through withholding.
The member need not file a copy of the exemption certificate with the Department and the flow-through entity need not attach a copy of the exemption certificate to its Annual Reconciliation Return. However, both the flow-through entity and the member must retain a copy of the exemption certificate and provide it to the Department upon request.
The Department maintains the right to revoke an exemption certificate if it finds that the member is not abiding by the terms of the certificate or the exemption requirements as explained above. If the Department revokes the exemption certificate, it must notify the flow-through entity of its obligation to begin withholding 60 days after receipt of the notice of revocation.
This exemption is not available to members that are nonresident individuals.
Is a flow-through entity required to withhold on a member that makes the election to file and pay under the MBT in lieu of the CIT?
No. A flow-through entity is not required to withhold on any member that elects to be an MBT taxpayer under MCL 206.680 or MCL 208.1500. MCL 206.703(18). This exemption exempts the flow-through entity from withholding only for those members that make the MBT election.
If the FTE elects to file and pay under the MBT, must the FTE withhold on the distributive shares paid to corporate members that are not unitary with the FTE and that did not make the MBT election?
No. If the FTE makes a valid election to file and pay under the MBT, it does not have to withhold on behalf of corporate members that are not in a unitary business group with the FTE. MCL 208.1500(1)
Must a wholly owned FTE withhold on its owners?
Yes. If the FTE is owned by a non-resident individual or is owned by a C corporation or a flow-through entity and has more than $200,000 in business income allocated or apportioned to Michigan, then the flow-through entity must file and pay flow-through withholding.