Why am I being charged penalty and/or interest?
Explanations of why penalty and interest may have been charged:
- Late, Non-Remittance, and/or Deficiency Penalty and Interest - Annual tax liability needs to be paid in full by the annual return due date. When annual liability is not paid in full by the due date of the return, penalty and interest is charged on annual liability for three reasons:
- Late Penalty and Interest: If liability has been paid before the date of your notice but all or a portion was paid after the original due date, late penalty and interest will be charged on the amount of liability paid late.
- Non-Remittance Penalty and Interest: If all or a portion of liability has not been paid as of the date of your notice, non-remittance penalty and interest will be charged on the unpaid liability. Also, if Treasury made adjustments that decrease the credits or payments applied to your return (below the tax liability line on the return), deficiency penalty and interest will be charged on the difference.
- Deficiency Penalty and Interest: If Treasury made adjustments to your return that increase your tax liability, deficiency penalty and interest will be charged on the amount by which liability increased.
Penalty and interest will accrue on the unpaid tax from the original due date of the return.
- Interest accrues from the time the tax is due until payment is made at one percentage point above the “adjusted prime rate”. The rate is adjusted on July 1 and January 1 and is published on Treasury’s website in Revenue Administrative Bulletins (RABs).
- Penalty of 5% of the tax due is assessed for the first two months. Penalty increases by an additional 5% per month or fraction thereof, after the second month, to a maximum of 25%.
- To calculate late, non-remittance or deficiency penalty and interest, please see the Penalty and Interest Calculator.
- Extension Penalty and Interest - An extension to file does not grant additional time to pay. To avoid penalty and interest, you must still pay on or before the original due date of the annual return. If the tax due is underestimated and/or sufficient payment is not paid by the original due date, penalty and interest will be due on the unpaid or underpaid amount, as discussed above. NOTE: If a Michigan Business Tax (MBT) extension is filed on time but total payment received by the original due date is less than 90% of the tax liability, a 10% negligence penalty may apply in addition to penalty for failure to pay (5%-25%).
- Underpaid Estimate Penalty and Interest - A taxpayer that reasonably expects its tax liability for the year to be greater than $800 is required to make quarterly estimated payments. To avoid interest and penalty charges, estimated payments must equal at least 85% of the total tax liability for the current year and the amount of each estimated payment must reasonably approximate the tax liability for that quarter. If the prior year’s tax, including surcharge, is $20,000 or less, estimated tax may be based on 100% of the prior year’s total tax liability. This is known as a safe harbor provision. (NOTE: The safe harbor provision is not allowed for 2008 MBT tax year.)
See MBT Instruction Booklet for Standard Taxpayers (Form 4600) for due dates of estimated payments for the year in question. Failure to make timely and sufficient estimated payments will result in penalty and interest charged on any underpayment, based on four equal payments totaling 85% of the current year tax liability. To calculate Underpaid Estimate Penalty and Interest, do not use the “Penalty and Interest Calculator” on Treasury’s Web site; you must instead refer to Form 4582.
- If income was not evenly distributed throughout the year, a taxpayer is eligible to submit an Annualization Worksheet to adjust the amount of payment due each quarter to a schedule other than four equal payments. Submitting the worksheet after underpaid estimate penalty and interest is charged may lead to an adjustment of penalty and interest. Note: Depending on the type of taxpayer, this may require filing a complete amended return, including all forms, schedules and attachments.
- Standard taxpayers may use the Annualization Worksheet on Part 4 of Form 4582 to calculate and report the annualized estimates due. In order to submit Form 4582 after the original return has been filed, you must complete an amended return along with all necessary forms and attachments, including Form 4582 completed in its entirety and mail to the MBT Return Address.
- Insurance companies and financial institutions may use the Annualization Worksheet on Part 4 of Form 4582 to calculate and report the annualized estimates due. Because Form 4582 is designed for standard taxpayers and insurance companies who file the Insurance Company Annual Return for Michigan Business and Retaliatory Taxes (Form 4588) and financial institutions who file the MBT Annual Return for Financial Institutions (Form 4590) compute tax differently, insurance companies and financial institutions must complete a separate schedule showing the entity’s computations for each quarter up to the “Net Tax Liability” line in Part 4. Enter on the “Net Tax Liability” line of Form 4582 the corresponding amounts from the separate schedule and complete the rest of the Form 4582. The schedule of calculations, along with Form 4582 completed in its entirety, should be mailed to the MBT Correspondence Address.