General FTE Tax Credit

These terms can be used to describe a credit generated by an FTE taxpayer for another flow-through entity or trust, which is listed as a direct member on Form 5774, Part 2.  That credit is passed through to the member flow-through entity’s owners and each respective share is ultimately claimed by taxpayers subject to Michigan individual income tax or corporate income tax (Part 1 or Part 2 of the Michigan Income Tax Act). Those taxpayers own the credit-generating flow-through entity indirectly, which is why their credits may be referred to as indirect credits. In addition, this ownership structure is often referred to as a tiered structure and therefore, creates what may be referred to as tiered credits.

As is required to support any FTE tax credit claim, include a copy of the Schedule K-1 with the Schedule K-1 notes, or other supporting documentation received from a flow-through entity, that reports to the taxpayer its share of credit and tax base adjustments. For a tiered/indirect credit, that documentation must include the name and FEIN of the credit-generating flow-through entity, and have credits, share of MI taxable income, and adjustments separately stated by flow-through entity.

If you are a direct or indirect member of a flow-through entity that elected to pay the Michigan FTE tax, you may claim a refundable credit of your allocable share of the tax levied and paid by the flow-through entity under the Michigan FTE tax.

Yes, the refundable credit may be claimed on Form MI-1040, Form MI-1041, or Form 807. Please note that all tax year 2021 returns claiming a Michigan FTE tax credit are not eligible for e-file.

Beginning tax year 2022, MI-1040 and MI-1041 can be e-filed.

Note: The 2021 MI-1040 and MI-1041 must be paper filed if claiming an FTE tax credit.

Generally, yes. Flow-through entities that elect to pay the Michigan FTE tax should file the Form 5772 through Michigan Treasury Online (MTO) and pay any tax due to ensure that the proper amount of credit may be claimed on income tax forms MI-1040, MI-1041, or 807.

A direct or indirect member of an electing flow-through entity is not required to make estimated tax payments for flow-through income that will be subject to the Michigan FTE tax and for which the member will receive a refundable credit.

Treasury will not transfer estimated tax payments or extension payments made under a member’s SSN or FEIN to a flow-through entity’s business tax account for purposes of being claimed on the flow-through entity’s Michigan Flow-Through Entity Tax Annual Return (Form 5772). 

The estimated tax or extension payment must be claimed on the Michigan Individual Income Tax Return (Form MI-1040), Michigan Fiduciary Income Tax Return (Form MI-1041), or Michigan Composite Individual Income Tax Return (Form 807) filing.

Any member that is exempt from tax in Michigan, yet eligible to claim an FTE tax credit, should file the appropriate tax return to claim the credit. The member credit will be refunded upon processing of that return. 

For example, an eligible ESOP should file the Michigan Fiduciary Income Tax Return (Form MI-1041) to claim its Michigan FTE tax credit.