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D. What are the filing and payment deadlines under the flow-through entity tax?

The Implementation of the Michigan Flow-Through Entity Tax

D. What are the filing and payment deadlines under the flow-through entity tax?

The flow-through entity tax establishes certain deadlines for the payment of quarterly estimated taxes and the filing of annual tax returns. Because the flow-through entity tax is administered pursuant to the general provisions of the Revenue Act, MCL 205.1 et seq,26 flow-through entities that fail to file returns or fail to pay tax as required under the flow-through entity tax are subject to penalty and interest.27

Annual return filing and payment due dates28

The annual flow-through entity tax return is required to be filed by the last day of the third month after the end of the taxpayer’s tax year (March 31 for calendar year filers). An annual return must be filed by all electing flow-through entities – there are no de minimis liability thresholds for return filing purposes (i.e., an annual liability of $100 or less),29 and an annual return is required even if liability was paid in full through estimated payments. The date set for filing the annual return may be extended for an additional 6 months (i.e., until September 30 for calendar year filers) upon application by the taxpayer, either for good cause shown or automatically if the taxpayer has been granted an extension of time to file the federal income tax return for that year. Although a valid extension extends the time to file the return, it does not extend the time to pay the tax. A flow-through entity must pay, by the initial due date of the annual return, its estimated tax liability unpaid for the tax year covered by an extension. Interest and, if applicable, penalty, will accrue from the initial due date of the return until the tax is paid.

However, any payments toward a tax year’s tax liability that are made after the 15th day of the third month after the tax year (March 15 for calendar year filers) will not qualify for a member credit for that same tax year. Instead, those payments will be reported as credits eligible to be claimed for members’ immediately succeeding tax year. See Section I.E. for more information on reporting member credits.

Special instruction for 2021. The due date of the flow-through entity tax return for calendar year 2021 is March 31, 2022. As of the publication date of this notice, returns and instructions for the implementation of the flow-through entity tax are being developed and, once available, will be accessible on Treasury’s MTO website. The return and any payment toward that return must be filed through MTO. Because the enactment of the legislation was not expected until the end of the 2021 year, such that significant delays were anticipated in the processing of returns for this initial tax year, the statute provides that, for the tax year 2021 only, any refund reflected in an annual return under Part 4 of the Income Tax Act will not accrue interest.30

Estimated tax payments31

Flow-through entities that elect to pay the flow-through entity tax are required to make estimated payments each year that their annual tax liability is reasonably expected to exceed $800.32 For calendar year filers, the estimates must generally be made in equal installments on or before April 15, June 15, September 15, and January 15. For fiscal year filers, the estimates must be made in equal installments on dates that correspond to the due dates in the calendar year. Taxpayers are subject to penalty and interest for failure to pay estimated payments as required under the Revenue Act; however, for tax year 2022, penalty and interest will not be charged if the preceding year’s liability was $20,000 or less and the taxpayer submitted 4 equal installments, the sum of which equals the immediately preceding year’s liability.

Special Instruction for 2021. Because the flow-through entity tax is retroactive for tax year 2021, certain estimated payments otherwise due throughout 2021 may not have been made. Penalty and interest will not be levied on any quarterly estimated tax return or payment that was due prior to the enactment of the tax.33 Flow-through entities that elected to pay the flow-through entity tax before January 18, 2022, should include any unpaid estimates with the next quarterly estimated payment due. Entities that have not elected to pay the flow-through entity tax as of January 18, 2022, should remit any unpaid estimated payments when making a timely election to pay the tax. For example, calendar year filers that have made the election before January 18, 2022, should include the estimates previously due from the first, second, and third quarters with the fourth quarter estimated tax payment due on January 18, 2022.

Some flow-through entities may have previously made quarterly estimated tax payments for purposes of a Composite Individual Income Tax Return (Form 807). Any estimated payments made by a flow-through entity for a composite return will not be treated as estimated payments for purposes of the flow-through entity tax and will accordingly neither satisfy the entity’s estimated tax obligations nor constitute an election under the flow-through entity tax. Those flow-through entities must separately remit the quarterly estimated payment(s) required under the flow-through entity tax.

26MCL 206.121.
27For more information, see RAB 2005-3.
28MCL 206.833.
29MCL 206.833(1).
30MCL 206.837.
31MCL 206.831.
32MCL 206.831(1).
33See MCL 205.28(1)(e); MCL 205.30.

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