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Effective December 21, 2021, PA 135 of 2021 amends the Income Tax Act to create a flow-through entity tax in Michigan, allowing certain flow-through entities to elect to file a return and pay tax on income in Michigan and allows members or owners of the entity to claim a refundable tax credit equal to the tax previously paid on that income. The tax is retroactive to tax years beginning on or after January 1, 2021.
All payments and returns are required to be submitted electronically through Michigan Treasury Online (MTO). Payments and returns submitted outside of MTO will not be accepted or considered a valid election into the flow-through entity tax. Michigan Treasury Online Help Center is available for any questions related to accessing and using MTO.
Note: For assistance with specific deadlines for elections, returns, and payments, see the FTE Deadline Calculator.
All payments for flow-through entity tax are required to be submitted through Michigan Treasury Online (MTO). A payment submitted timely through MTO will be considered a valid election for the tax year specified for the payment.
Note: Payments submitted outside of MTO will not be accepted or considered as a valid election for the flow-through entity tax. In addition, other payments made by flow-through entities (e.g., for composite return estimated payments) or members (e.g., for MI-1040 estimated payments) will not be applied toward the flow-through entity tax and will not constitute an election into the tax.
For 2021, while the initial election into the flow-through entity tax and any required payments aren't due until 2022, payments can be made using the Fast Pay option under Guest Services beginning December 29, 2021.
See Flow-Through Entity Payments Instructions or visit the MTO Help Center for help making payments or using MTO.
For calendar year filers, the estimates must generally be made in equal installments on or before April 15, June 15, September 15, and January 15. For fiscal year filers, the estimates must be made in equal installments on dates that correspond to the due dates in the calendar year. Taxpayers are subject to penalty and interest for failure to pay estimated payments as required under the Revenue Act.
Because the flow-through entity tax is retroactive for tax year 2021, certain estimated payments otherwise due throughout 2021 may not have been made. Penalty and interest will not be levied on any quarterly estimated tax return or payment that was due prior to the enactment of the tax. Flow-through entities that elected to pay the flow-through entity tax before January 18, 2022, should include any unpaid estimates with the next quarterly estimated payment due. Entities that have not elected to pay the flow-through entity tax as of January 18, 2022, should remit any unpaid estimated payments when making a timely election to pay the tax.
For example, calendar year filers that have made the election before January 18, 2022, should include the estimates previously due from the first, second, and third quarters with the fourth quarter estimated tax payment due on January 18, 2022.
Electronic filing will be available March 10, 2022, through MTO. For planning purposes, taxpayers will need to provide the following information:
For information about reporting to members, see Treasury's Notice Regarding the Implementation of the Michigan Flow-Through Entity Tax and the templates below.
Below are suggested templates that FTE taxpayers, or any other flow-through entity in a tiered structure, can use to report FTE tax information to their members. The templates are suggested but not required. There are two tabs, one for the reporting of “direct” credits and adjustments, and the other for the reporting of “indirect”/ “tiered” credits and adjustments. Members claiming credits and adjustments must include a copy of these reports (or, if the template is not used, other equivalent documentation), as applicable, with their annual return (MI-1040, MI-1041, or 4891).
Do not submit this report with the Annual Flow-Through Entity Tax Return (Form 5772), elsewhere on MTO, or to the Business Taxes Division unless requested.
FTE Template to Report to Members
Food Holdco, LLC owns a share of Bagels LLC, Chocolates LLC, and Snacks LLC in the following proportions, respectively: 33.33%, 44.44%, and 55.55%. All LLCs are taxed federally as partnerships and therefore, are flow-through entities under the Michigan income tax act. Sarah Smith owns 50% of Food Holdco LLC.
Bagels, Chocolates, and Snacks all elected into and paid Michigan’s Flow-Through Entity Tax (FTE tax) for their respective tax years ending with or within Food Holdco’s tax year beginning October 1, 2023, and ending September 30, 2024. The following facts and templates represent the hypothetical reporting of FTE tax information from Bagels to Food Holdco (Direct Members Example), and from Food Holdco to one of its members, Sarah Smith (Indirect Reporting Example). Although certain example reports are not included here, the other lower-tier entities would also use the “Direct Members” tab to report their information to Food Holdco (which has already been done for this example) and Food Holdco would use the “Indirect Reporting” tab to report all information from the lower tiers to its remaining members.
For its tax year ending 9/30/2024, Bagels reported $27,000,000 in Income Subject to Tax and $1,080,000 Total Tax Liability on its annual FTE tax return, Form 5772. Bagels made three quarterly estimated payments totaling $540,000 during its tax year, paid $495,000 for its fourth quarterly payment on 10/15/2024, and paid its final $45,000 with its annual return on the due date, 12/31/2024. In other words, Bagels paid $1,035,000 by the 15th day of the 3rd month after its tax year, and $45,000 after that date.
In addition, Bagels paid a portion of its prior tax year liability later than the 15th day of the 3rd month after that tax year and received a $1,000 refund of Michigan FTE tax during its current tax year; Bagels must report Food Holdco’s share of both amounts. The following reports depict the reporting from entities to members (not to Treasury) under these facts.
Example Template to Report to Members
For flow-through entities with calendar or fiscal tax years beginning in 2021, the flow-through entity tax election may be made no later than April 15, 2022. This date is provided as a special provision in the law due to its retroactivity and applies only to tax years beginning in 2021. Any election made through April 15, 2022, for tax year 2021 is irrevocable for that tax year, plus the next two successive tax years. Flow-through entities can generally make the election for tax year 2021 by specifying a payment for the 2021 tax year that includes the combined amount of any unpaid quarterly estimated payments due for tax year 2021.
Any flow-through entity making a 2021 election after the due date of the flow-through entity tax annual return (March 31, 2022, for calendar year filers) should immediately file the return and include payment of the tax due. Any election made after April 15, 2022, will not be accepted as a valid election for the 2021 tax year.
For calendar year electing flow-through entities: Regardless of when a timely 2021 election is made, only payments made on or before March 15, 2022,* are eligible to be claimed as a credit on members’ 2021 returns (e.g., MI-1040). Any payments toward a flow-through entity’s 2021 calendar tax year that are made after March 15, 2022, will be claimed as a credit against members’ 2022 tax liability. For example, a flow-through entity that elects into tax year 2021 on March 31, 2022, pays all tax due for the year on that date. Although this flow-through entity’s members may report their distributive shares of Michigan income on their 2021 returns, in this example, members will claim credits for their allocated shares the flow-through entity’s 2021 tax on their 2022 returns.
For flow-through entities with calendar or fiscal tax years beginning in 2022, the flow-through entity tax election may be made through the 15th day of the third month within the tax year (March 15, 2022, for calendar year filers*). Any timely election for tax year 2022 is irrevocable for that tax year, plus the next two successive years. . For any tax year beginning in 2022, elections must be made by submitting a payment through MTO. That payment - which may be either a nominal or greater amount, such as the first quarter estimated payment due on the following month - must be designated as applicable to the 2022 tax year.
* See Treasury's Notice: Flow-through Entity Tax Payments Delayed Due to MTO Registration Will Be Treated as Timely for Taxpayers Registered as of March 15, 2022