Changes to Michigan Flow-Through Entity Tax

The Michigan Flow-Through Entity (FTE) Tax was enacted in 2021, allowing entities classified as an S corporation or a partnership for federal tax purposes to elect to pay Michigan income tax at the entity level. Without an FTE election, the Michigan income from a partnership or an S corporation is taxed at the shareholder or member level on a Michigan individual, estate tax, or trust return. An election made in 2021 when the law was enacted was good for three years.  Companies wishing to continue their FTE eligibility were required to re-elect FTE by March 15, 2024.  Many companies were caught off guard and missed the election.

Governor Gretchen Whitmer has signed Public Act 216 of 2024 that makes changes to the original law that includes extending the election window.

Updates to original Michigan Flow-Through Entity Tax

In the past, confusion has arisen due to the renewal election deadline and tax return deadlines. In the newest version recently signed by Governor Whitmer, updates are made for accuracy and clarity:

• For tax years beginning on and after January 1, 2024, a qualified entity can make an election with the Michigan Department of Treasury before the last day of the ninth month after the end of the tax year. Originally, the election had to be made in the first two and half months of the tax year.
• For tax years that begin on and after January 1, 2024, the member's share of the tax that can be credited on the member’s individual tax return may be paid on or before the date for the filing of the annual return under section 833 for the tax year, including any extension.  Prior law the tax to be credited had to be paid by March 15th.
• The interest and penalty shall not be assessed for any quarterly estimated payment due before the taxpayer makes the election to pay the tax due under this part for that tax year unless the department determines that the deficiency is due to the taxpayer's intentional disregard of the law.