The Michigan Flow-Through Entity tax (“FTE tax”), enacted late in 2021, is Michigan’s work-around for the federal SALT deduction cap. For those flow-through entities (S-corporations or entities taxed as partnerships for federal purposes) wishing to elect into the FTE tax in its first year, the deadline is rapidly approaching. Because 2021 is the first year subject to tax for those entities wishing to opt in, the ordinary election deadline of March 15 has been extended to April 15. The election is made by paying the tax electronically using Michigan Treasury Online. Any other form of payment will not be a valid election, and a payment after April 15 will not register the entity for the 2021 tax year.
Although the election, consisting of payment of the estimated tax amount for tax year 2021, may be made through April 15, the due date for the tax was not changed from March 31. For payments made by April 15, 2022, interest, but no penalty, will accrue beginning March 31. For the 2021 tax year, no interest will be charged on the estimated payments that would have ordinarily been due.
The FTE tax return itself – Michigan Form 5772 – has an unextended due date of March 31. The good news is that a six-month extension is available, bringing the filing due date to September 30 for calendar year filers. This extension is automatic for those taxpayers with a federal extension, and may be granted for cause for other taxpayers.
Those considering electing before the April 15 deadline should be aware that the last day for their tax payment to be eligible for the member credit for tax year 2021 was March 15. This date was not extended. Therefore, members of an entity taking advantage of the April 15 election deadline will not receive credit for the entity’s 2021 payment until their own 2022 tax years. Another important point of awareness is that the election to be subject to the FTE tax is effective – and irrevocable – for three tax years.
If you would like to discuss FTE issues, please contact Derek Heyman or any other ZHF professional.