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FTE and Composite IIT

Frequently Asked Questions

  • No, a composite return is an optional individual income tax return that may be filed by a flow-through entity to fulfill its nonresident members’ individual income tax filing obligation in Michigan. The composite return does not fulfill the flow-through entity’s filing obligation regarding the Michigan FTE tax. A Michigan Flow-Through Entity Tax Annual Return (Form 5772) must always be filed by an electing flow-through entity.
  • No, the Michigan FTE tax return reports an entity-level tax and does not satisfy the respective individual-level filing obligations of its members. 

  • Yes. In a tiered structure income from other flow-through entities is generally included in the composite filer’s income on the composite return, then adjusted out of the filer’s Michigan taxable income. However, the Michigan-sourced income from non-electing flow-through entities must be added back on an electing entity’s composite return to the extent it is reported on the electing entity’s/composite filer’s Michigan Flow-Through Entity Tax Annual Return (Form 5772). See the instructions for Michigan Composite Individual Income Tax Return (Form 807) for additional information.

  • The adjustment should be reported as an addition on Michigan Composite Individual Income Tax Return (Form 807). The flow-through entity must add the participants’ share of Michigan FTE tax paid and deducted from the flow-through entity’s income for the tax year and, therefore, deducted in arriving at the distributive share and AGI of participants. 
  • The adjustment should be reported as a subtraction on Michigan Composite Individual Income Tax Return (Form 807). The flow-through entity must subtract the participants’ share of Michigan FTE tax refunded to the flow-through entity and included in the flow-through entity’s income for that tax year and, therefore, included in the distributive share and AGI of participants.
  • No, a flow-through entity that has elected to pay the Michigan FTE tax and paid the Michigan FTE tax on a non-electing entity’s income may not participate in another entity’s composite return. See the instructions for Michigan Composite Individual Income Tax Return (Form 807) for additional information.

  • The credits must be generated by the composite filer and should include the following:

    1. For Michigan FTE tax levied on the composite filer’s current tax year, each participant’s share of that tax paid by the filer through the fifteenth day of the third month after the filer’s tax year end.
    2. For Michigan FTE tax levied on the composite filer for any previous tax year, each participant’s share of that tax paid during the current tax year, excluding any amount reported in item number 1.
  • No, credits generated by any other electing flow-through entity may not be claimed on a composite filing (Michigan Composite Individual Income Tax Return Form 807).

  • The flow-through entity must provide to all members, regardless of the members’ participation in the composite filing, the following information:

    1. Information regarding the allocation and apportionment of the business income used by the entity to determine the Michigan FTE tax.
    2. The member's share of income taxes deducted on the flow-through entity's federal return that are allocable and apportionable to Michigan.
    3. The member's share of any refund of the Michigan FTE tax  received by the entity, if applicable.
    4. The member's share of the following tax amounts, reported separately:
      1. The tax imposed under the Michigan FTE tax for the tax year and paid by the fifteenth day of the third month after the end of the tax year.
      2. The Michigan FTE tax imposed for any prior tax year that was paid in the current tax year excluding any amount reported under 4a for the previous tax year.
      3. The Michigan FTE tax allocated to the reporting flow-through entity under 4a or 4b by other flow-through entities with tax years ending on or within the reporting flow-through entity's tax year.

    Additionally, if a tiered structure exists, the flow-through entity must report to each member their allocable share of any of the above items that are allocated to the flow-through entity by another flow-through entity in the tiered structure that elected to pay the Michigan FTE tax.