Michigan Flow-Through Entity Tax Election Deadline Approaching – March 15
Michigan’s Flow-Through Entity (FTE) tax became available for tax years beginning January 1, 2021, as a workaround to the $10,000 state and local tax limitation imposed by the 2017 Tax Cuts and Jobs Act. Flow-through entities (partnerships and S-corporations) that elect into the tax receive the benefit of deducting Michigan income tax at the entity level for its shareholders or members, thus saving federal income tax. Members or shareholders can then receive a credit on their personal income tax returns to offset the Michigan tax liability created by the flow-through entity income reported on their K-1s.
The Michigan FTE tax is unique compared to many other states’ FTE taxes. The election must be made in advance, by March 15 of the year the election is for. The election is irrevocable and effective for three years, beginning with the year of election plus the two subsequent years. Therefore, if an entity first elected into Michigan’s FTE tax for the 2021 tax year, its election expired with the 2023 tax year. If you made a Michigan FTE election for the 2021 tax year, you must renew it by March 15, 2024, if you want to continue the election.
If a company wishes to retain the federal tax benefit for the 2024 tax year or make a first-time election, an election must be made by March 15, 2024. To make an election, a payment must be made through Michigan Treasury Online (MTO) in the amount of $1 or more, applied towards the 2024 tax year. There is no option for late elections. Since MTO does not post same-day payments, taxpayers should initiate their payment no later than March 14 on MTO to have a timely election.
Key dates for Michigan FTE during the first few months of 2024:
- March 15 – new or renewal elections due (requires payment on MTO)
- March 31 – annual 2023 filing due on MTO
- April 15 – first quarter 2024 estimate due
With limited time to renew your election or make a first-time FTE election, contact your Yeo & Yeo advisor with questions.