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18. Are estimated tax payments required for nonparticipating individuals?
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 estimate tax payments may be remitted online using the Michigan Department of Treasury’s e-Payments system or by mailing a payment with an Estimated Individual Income Tax Voucher (MI-1040ES).
A flow-through entity (FTE) may elect to remit quarterly estimated tax payments on behalf of its nonparticipating members. Estimated tax payments may be remitted online through the Michigan Department of Treasury’s e-Payments system or by mailing a payment with an Estimated Individual Income Tax Voucher (MI-1040ES) using the nonparticipating member’s name and social security number. Estimated tax payments remitted by an FTE 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 the Michigan Department of 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:
- 90% of the tax shown on the return for the current taxable year, or
- 100% of the tax shown on the return for the preceding taxable year, or
- 110% 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% of the tax due (with a minimum of $25) for failing to remit estimated tax payments or 10% (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 FTE elected to pay Flow-through entity tax. See “Flow-Through Entity (FTE) Tax Credit FAQs”.