For tax years beginning on or after January 1, 2024, eligible Michigan taxpayers who wish to make the flow-through entity (FTE) tax election now have until the last day of the ninth month after the end of their tax year. For example, a calendar year FTE must file the election with the department on or before September 30, 2025, for the 2024 tax year.
Before the amendment in House Bill 5022, the same entity would have had to file its FTE tax election by March 15, 2024.
Taxpayers who make or have made the FTE tax election, and reasonably expect to owe tax for the year, are required to file quarterly estimated returns and make payments. House Bill 5022 includes the following situations in which elective taxpayers will not be subject to penalties and interests:
Penalties and interest will not be assessed for tax years beginning on or after January 1, 2024, as long as the taxpayer submits four equal payments that total:
- 90% of the taxpayer’s current-year liability, or
- 100% of the taxpayer’s previous year’s liability.
Penalties and interest will not be assessed for tax years 2022 and 2023 as long as:
- The preceding year’s tax liability was $20,000 or less, and
- The taxpayer submitted four equal payments totaling the immediately preceding tax year’s tax liability.
Penalties and interest will not be assessed for any quarterly estimated payment due before the taxpayer makes the FTE tax election for that tax year.
A member may claim credits on their personal or corporate tax returns for FTE payments. Under House Bill 5022, for tax years beginning after January 1, 2024, the member’s share of FTE tax is creditable if the payment was made before the filing date of the annual return. This is an extension from the previous cutoff of the 15th day of the third month after the close of the FTE’s tax year.
Varnum’s Tax Planning, Compliance and Litigation Team is available to assist and answer any questions about the FTE tax election.