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Michigan Amends Flow-Through Entity Tax

Writer's picture: Baker HoltzBaker Holtz

After years of administrative issues and months of speculation, Governor Whitmer officially signed House Bill 5022 into law on January 17, 2025.

The bill is designed to provide flexibility in tax elections and payment deadlines, which may reduce administrative burdens and penalties for entities and their owners. 


Key Updates from House Bill 5022


New Election Deadlines:

  • Prior Rule: Taxpayers had to elect into the flow-through entity tax (FTE) no later than March 15 of the year they wish to elect. For example, calendar year entities had until March 15, 2024, to elect into the FTE for their 2024 tax year.

  • New Rule (starting in tax years beginning on or after January 1, 2024): Flow-through entities can file their election as late as September 15th after the end of the tax year.

  • What this means: The change allows taxpayers to retroactively elect into FTE for 2024, allowing more time to determine if the election will be beneficial.


Changes to Penalties & Interest for Estimated Tax Payments:

  • Prior Rule: If taxpayers expected a liability of at least $800, they were required to make quarterly estimated FTE payments.

  • New Rule: No penalties or interest will apply if:

  • Four equal FTE payments are made totaling 90% of the current year’s FTE liability or 100% of the previous year’s FTE liability.

  • No penalties/interest apply for FTE payments that were due before making the election, unless there’s intentional non-compliance.

  • What this means: Due to these favorable changes, taxpayers have clearer options for making quarterly estimates which should result in less underpayment penalties and interest.


Timing of Creditability:

  • Prior Rule: FTE credit was only available if payments were made prior to March 15 of the succeeding tax year. For example, individuals could only receive credit on their 2023 Michigan return if FTE payments were made prior to March 15, 2024.

  • New Rule (starting in tax years beginning on or after January 1, 2024): the owner’s share of the tax associated with the FTE is creditable provided the payments are made no later than the filing of that year’s return. For example, all FTE payments should count towards 2024 if payments are made on or before September 15, 2025.

  • What this means: There should not be a mismatch in the timing of the credit, which should ease compliance and result in less underpayment penalties and interest.


Next Steps


For more resources on House Bill 5022, please see the Michigan Legislature Website for the bill in its entirety. Baker Holtz is well versed in the navigation of tax policy and planning. Check out our Baker Holtz Blog for more tax tips and policies for your financial future.


Please reach out to us with any questions and we would be happy to personally assist you.


161 Ottawa Ave NW Suite 200

Grand Rapids, MI 49503

Phone: 616-458-1835

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