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Composite

Frequently Asked Questions

  • Flow-through entity - An entity that, for that tax year, is an S corporation, a general partnership, a limited partnership, a limited liability partnership, or a limited liability company that is not taxed as a C corporation for federal income tax purposes for that tax year. Flow-through entities do not include a publicly traded partnership or a disregarded entity for federal income tax purposes. MCL 206.12(1)

    Flow-through entity (FTE) tax - Michigan tax enacted by PA 135 of 2021: levied against electing flow-through entities with business activity in Michigan, retroactive effective January 1, 2021. MCL 206.801 - 206.847

    Intermediate flow-through entity - A flow-through entity in a tiered structure that has an interest in another flow-through entity.

    Member of a flow-through entity - An individual, estate, trust, or intermediate flow-through entity. 

    Nonresident member - An individual who is not domiciled in this state; nonresident estate or trust; or intermediate flow-through entity with a nonresident ultimate owner. MCL 206.12(5)

    Participant - A nonresident member who has elected to participate in a composite return.

    Ultimate owner - An individual, estate, or trust that has an interest in a flow-through entity or intermediate flow-through entity.

    Tiered entities - A flow-through entity is part of a tiered structure if it has one or more members that are also flow-through entities. A tiered structure consists of a source flow-through entity and one or more intermediate flow-through entities. The intermediate flow-through entity receives income from the source flow-through entity and the income is passed through to the ultimate owner(s).

    Corporation - Any entity that is required to or has elected to file as a C corporation for federal income tax purposes for that tax year. MCL 206.6(3)

    Distributive Share - A member’s share of business income reported to the member on a federal Schedule K-1.

    Business Income - For an flow-through entity, business income includes payments and items of income and expense that are attributable to business activity of the flow-through entity and separately reported to the members, including portfolio income. MCL 206.4

  • A Michigan Composite Individual Income Tax Return (Form 807)  is a collective individual income tax filing for two or more participating nonresident members filed by the flow-through entity. This form is used to report and pay individual income tax under Part 1 of Public Act 281 of 1967, as amended. An intermediate flow-through entity may elect to participate on behalf of its nonresident members if its ultimate owner(s) can be identified. ** Participation in a composite return will eliminate the need for an individual ultimate owner to file a Michigan Individual Income Tax Return (Form MI-1040), when the ultimate owner has no other Michigan-sourced income. 

    A C corporation or an entity that files federally as a C corporation is not eligible to participate in the composite return.

    This return is not an entity-level filing for tax imposed on the flow-through entity.

    **Limitations may apply on an intermediate flow-through entity's ability to participate in another flow-through entity's composite return if the intermediate flow-through entity elected to pay the Michigan FTE tax. See "Flow-Through Entity (FTE) Tax Credit FAQs"

  • No, a Michigan Composite Individual Income Tax Return (Form 807) is optional.  A flow-through entity may file a composite return on behalf of its nonresident members who elect to participate** or each individual member must file a Michigan Individual Income Tax Return (Form MI-1040), Michigan Nonresident and Part-Year Resident Schedule (Schedule NR), Michigan Additions and Subtractions (Schedule 1), and all other applicable schedules for a complete Michigan filing.

    **Limitations may apply on an intermediate flow-through entity’s ability to participate in another flow-through entity’s composite return if the intermediate flow-through entity elected to pay the Michigan FTE tax. See “Flow-Through Entity (FTE) Tax Credit FAQs”.

  • A flow-through entity that has generated Michigan taxable income (loss) may choose to file a Michigan Composite Individual Income Tax Return (Form 807) on behalf of its nonresident members who elect to participate.** An intermediate flow-through entity may also be eligible to file a composite return. See "May an intermediate flow-through entity file a composite return?".

    **Limitations may apply on an intermediate flow-through entity's ability to participate in another flow-through entity's composite return if the intermediate flow-through entity elected to pay the Michigan FTE tax. See "Flow-Through Entity (FTE) Tax Credit FAQs".

  • Yes, a flow-through entity that has elected to pay the Michigan FTE tax may still file a composite return on behalf of its participating members.

    For more information about the Michigan FTE tax credit, see "Flow-Through Entity (FTE) Tax Credit FAQs".

  • Yes, an intermediate flow-through entity that generated its own income or loss and has two or more participating nonresident members may file its own composite return, even if the intermediate flow-through entity participated in another composite return.**

    If an intermediate flow-through entity participated in another flow-through entity’s composite return, it should not include any income or tax paid on its behalf with the other flow-through entity’s composite return.

    **Limitations may apply on an intermediate flow-through entity's ability to participate in another flow-through entity's composite return if the intermediate flow-through entity elected to pay the Michigan FTE tax. See "Flow-Through Entity (FTE) Tax Credit FAQs".

     

  • A participant in a Michigan Composite Individual Tax Return (Form 807) must be a nonresident member of a flow-through entity.  A nonresident member is an individual who is not domiciled in this state; a nonresident estate or trust; or intermediate flow-through entity** with a nonresident ultimate owner. An ultimate owner that participates in a composite return may not have a federal excess business loss limitation. 

    For each participating intermediate flow-through entity, include a Tiered Structure Schedule from the source flow-through entity to the ultimate owner, with the following:

    • Details for each tier of the tiered structure:
      • Flow-through entity name, FEIN and ownership percentage for each tier.
    • Details for each participating ultimate owner:
      • Name, address, account number, distributive share of Michigan income, tax, and ownership percentage.

    **Limitations may apply on an intermediate flow-through entity's ability to participate in another flow-through entity's composite return if the intermediate flow-through entity elected to pay the Michigan FTE tax. See "Flow-Through Entity (FTE) Tax Credit FAQs".

  • No, a nonresident member can choose not to participate in a Michigan Composite Individual Income Tax Return (Form 807) and can file their own Michigan Individual Income Tax Return (Form MI-1040), Michigan Nonresident and Part-Year Resident Schedule (Schedule NR), Michigan Additions and Subtractions (Schedule 1) and all other applicable schedules for a complete Michigan filing.

  • Yes, a nonresident trust can be a participant in a Michigan Composite Individual Income Tax Return (Form 807) - for trusts only.  Beneficiaries of a nonresident trust are not considered “members” of the trust for composite return purposes and may not be included in a composite filing.

    Note: Any payments made on behalf of a trust may not be claimed by the beneficiaries of the trust. Beneficiaries of a trust should remit their own applicable quarterly estimated income tax payments on a Michigan Estimated Individual Income Tax Voucher (MI-1040ES).

  • Nonresidents that participated in a Michigan Composite Individual Income Tax Return (Form 807) and have other Michigan-sourced income which requires them to file a Michigan Individual Income Tax Return (Form MI-1040) may not subtract the income reported on the composite return. Instead, taxpayers may claim a credit on their MI-1040 for their share of the tax paid on a composite return.  The credit should be entered on the MI-1040 and reported as tax withholding. Taxpayers may be required to provide supporting documentation of the amount claimed. Composite participants should be provided with this information by the entity filing the composite return.

  • A flow-through entity reports the distributive share of income (loss) of participating nonresident members by using its federal return and adjusting to Michigan taxable income through additions, subtractions, allocation and/or apportionment.  The return allows for a separation of income (loss) attributable to Michigan resident members and/or nonparticipating nonresident members, if any exist, this ensures that only the income of the participating nonresident members is being taxed on the return.

    The Michigan Composite Individual Income Tax Return (Form 807) is a calendar year return for nonresident individuals.  If the filing flow-through entity has a fiscal tax year for federal purposes, it would use the appropriate Form 807 that corresponds to the year the ultimate owners will include the flow-through entity's income in their federal individual income tax filing.

  • Yes, an NOL deduction may be claimed on a Michigan Composite Individual Income Tax Return (Form 807), but only to the extent that it is attributable to the same participants from the loss year and in the same proportions of ownership.

  • A Michigan Composite Individual Income Tax Return (Form 807) is generally due on April 15th after the close of the calendar year. The due date of composite return corresponds with the due date of the Michigan Individual Income Tax Return (Form MI-1040).

    If a flow-through entity cannot file by the due date, a request for an extension of time to file can be made by filing an Application for Extension of Time to File Michigan Tax Returns (Form 4) on or before the original due date of the composite return.

     

  • The Michigan Composite Individual Income Tax Return (Form 807) is a calendar year individual income tax filing for two or more nonresident members. A fiscal year flow-through entity will file a composite return for the calendar year in which the fiscal year ends. This will be a different year form than the flow-through entity's federal return. 

    Example:  A fiscal year flow-through entity with a year-end of September 30, 2019 will file a 2019 composite return even though the flow-through entity's federal filing will be a 2018 return. 

  • A flow-through entity may be required to include only the following items, as applicable, with its Michigan Composite Individual Income Tax Return (Form 807).

    • Copy of U.S. Form 1065 (5 pages) or U.S. Form 1120S (5 pages),
    • Michigan Schedule of Apportionment (Form MI-1040H),
    • Completed Schedule A, Schedule of Participants
      • Tiered Structure Schedule,
    • Completed Schedule B, Schedule of Nonparticipants,
    • Completed Schedule C, Schedule of Michigan Residents,
    • Statement signed by an authorized officer or general partner certifying that each participant has been informed of the terms and conditions of this program of participation,
    • A copy of Application for Extension of Time to File Michigan Tax Returns (Form 4).

     

  • The following information must be reported to each participant listed on the Michigan Composite Individual Income Tax Return (Form 807):

    • FEIN of the flow-through entity.
    • Tax year of the flow-through entity.
    • The participant’s distributive share of income allocated or apportioned to Michigan from Schedule A, Schedule of Participants, Column 2.
    • The participant’s share of tax liability on the composite return filed by the flow-through entity from Schedule A, Schedule of Participants, Column 3.
    • The flow-through entity's Michigan sales and the flow-through entity's total sales everywhere.
    • The participant’s prorated exemption allowance as computed on line 47 of the composite return.
    • Additional reporting requirements exist if the flow-through entity elected to pay the Michigan FTE tax. See "Flow-Through Entity (FTE) Tax Credit FAQs".

    The flow-through entity may use any method to report the necessary information to the participants so long as it conveys the information listed above.  Treasury recommends that the flow-through entity provides the information to the participants as a supplemental attachment to their federal Schedule K-1, which provides the participant with the information necessary to file a Michigan Individual Income Tax Return (Form MI-1040) if the ultimate owner has other Michigan-sourced income.

  • The following information must be conveyed to each nonparticipant listed on the Michigan Composite Individual Income Tax Return (Form 807):

    • The FEIN of the flow-through entity.
    • The tax year of the flow-through entity.
    • The amount of estimated tax paid by the flow-through entity on behalf of that member.
    • The member’s share of taxable income attributable to the flow-through entity.
    • The flow-through entity's Michigan sales and the flow-through entity's total sales everywhere.
    • Additional reporting requirements exist if the flow-through entity elected to pay the Michigan FTE tax. See "Flow-Through Entity (FTE) Tax Credit FAQs". 

    The flow-through entity may use any method to report the necessary information to its members so long as it conveys the information listed above. Treasury recommends that the flow-through entity provides the information to the members as a supplemental attachment to their federal Schedule K-1, which provides the member with the information necessary to file a Michigan Individual Income Tax Return (Form MI-1040).

  • Flow-through entities who intend to file a Michigan Composite Individual Income Tax Return (Form 807) may be required to remit estimated income tax payments with a Michigan Estimated Income Tax Voucher for Fiduciary and Composite Filers (Form MI-1041ES).** For each quarter, the flow-through entity should file one Form MI-1041ES with the quarterly estimated payment for all participants whose share of annual income tax liability is expected to exceed $500 after exemptions and credits. Form MI-1041ES must be completed with the name of the flow-through entity and the flow-through entity’s Federal Employer Identification Number (FEIN) that will claim the estimated payments on their composite return. Check the box for “Composite” to indicate the Filer Type. Do not submit estimated payments with Form MI-1041ES for members who are not participating in the composite return. 
     
    Flow-through entities using a calendar tax year must file vouchers and remit quarterly estimated payments with Form MI-1041ES by April 15, June 15, September 15, and January 15. 

    Flow-through entities with a fiscal tax year must remit quarterly estimated tax payments with Form MI-1041ES using the due date that corresponds with its fiscal tax year end. The first estimated payment is due on the 15th day of the fourth month after the prior fiscal tax year ends. Quarterly estimated payment due dates for a fiscal tax year filer apply regardless of the participants’ filing tax year. 
     
    The Michigan Income Tax Act requires every person to remit quarterly estimated tax payments if that person's income tax liability, after credits and withholding, is expected to exceed $500 for their tax year. MCL 206.301(1) Failure to remit required estimated tax payments may result in Treasury charging penalty and interest. 
     
    The Michigan Income Tax Act (MCL 206.301(11)), provides that the amount of an installment of estimated tax shall be computed in the same manner as provided in the Internal Revenue Code. If an individual owes more than $500, they may not have to make estimated tax payments if they expect their withholding to be at least:

    1. 90 percent of the tax shown on the return for the current taxable year, or
    2. 100 percent of the tax shown on the return for the preceding taxable year, or 
    3. 110 percent of the tax shown on the return for the preceding taxable year, if the preceding year’s adjusted gross income is more than $150,000 ($75,000 for married filing separately). 

    Penalty is 25 percent of the tax due (with a minimum of $25) for failing to remit estimated tax payments or 10 percent (with a minimum of $10) for underpaying estimated tax or remitting estimated tax payments late. Interest is one percent above the prime rate and is computed monthly. The rate is adjusted on July 1st and January 1st. 

    **Estimated tax payments may not be required if the flow-through entity has elected to pay the Michigan FTE tax. See “Flow-Through Entity (FTE) Tax Credit FAQs”. 

  • Members who do not participate in a composite return are required to remit applicable quarterly estimated income tax payments in the same manner as all other individual income tax filers.** Quarterly estimated tax payments may be remitted online using Treasury’s e-Payments system or by mailing a payment with an Estimated Individual Income Tax Voucher (MI-1040ES).  

    A flow-through entity may elect to remit quarterly estimated tax payments on behalf of its nonparticipating members electronically or by mail using the nonparticipating member’s name and social security number. Estimated tax payments remitted by an flow-through entity on behalf of a nonparticipating member would be claimed as estimated tax on that member’s Michigan Individual Income Tax Return (Form MI-1040). 

    The Michigan Income Tax Act requires every person to remit quarterly estimated tax payments if that person's income tax liability, after credits and withholding, is expected to exceed $500 for their tax year. MCL 206.301(1) Failure to remit required estimated tax payments may result in Treasury charging penalty and interest. 

    The Michigan Income Tax Act (MCL 206.301(11)), provides that the amount of an installment of estimated tax shall be computed in the same manner as provided in the Internal Revenue Code. If an individual owes more than $500, they may not have to make estimated tax payments if they expect their withholding to be at least:

    1. 90 percent of the tax shown on the return for the current taxable year, or
    2. 100 percent of the tax shown on the return for the preceding taxable year, or
    3. 110 percent of the tax shown on the return for the preceding taxable year, if the preceding year’s adjusted gross income is more than $150,000 ($75,000 for married filing separately). 

    Penalty is 25 percent of the tax due (with a minimum of $25) for failing to remit estimated tax payments or 10 percent (with a minimum of $10) for underpaying estimated tax or remitting estimated tax payments late. Interest is one percent above the prime rate and is computed monthly. The rate is adjusted on July 1st and January 1st. 

    **Estimated tax payments may not be required if the flow-through entity has elected to pay the Michigan FTE tax. See “Flow-Through Entity (FTE) Tax Credit FAQs”. 

  • Michigan’s flow-through withholding (FTW) tax was repealed in 2016 and was no longer required for entities with tax years beginning after June 30, 2016. FTW tax credits cannot not be claimed on composite returns filed for tax years 2018 and beyond.

    On returns for tax years before 2018, fiscal composite filers who were subject to FTW tax should report the withholding attributable to the participating members. This will be each participating member’s share of withholding paid and reconciled on the Michigan Annual Withholding Reconciliation Return (Form 4918), excluding any withholding refunded to the flow-through entity. Withholding refunded to the flow-through entity on Form 4918 should never be included in the amount of withholding reported to members at year-end.

    The withholding allocated to those members that participate in the composite return is claimed on the composite return, just as an individual would claim his share as a credit on Michigan Individual Income Tax Return (Form MI-1040) if the member was not participating. Each participant’s share of withholding listed in Part 4 of Form 4918 is reported on the Michigan Composite Individual Income Tax Return (Form 807), Schedule A (Schedule of Participants).