The Michigan House of Representatives approved, and the Senate passed changes to the FTE tax on December 11, 2024. The governor signed the bill on January 17, 2025. The changes are being made due to the challenges in implementation as originally passed. Generally, the changes are effective for the tax years beginning on and after January 1,2024. However, the changes do not take effect until April 2, 2025.

Summary of the changes: (issued February 3, 2025)

• The deadline to elect into the tax:
  • The last day of the 9th month after the end of the tax.
  • If an election is made after the annual return’s due date,(March 31st for calendaryear filers), the taxpayer must pay its full liability on the day of the election to avoidlate penalty and interest.
  • For return filing purposes, a flow-through entity that elects after the return due dateis presumed to have made a valid request to extend the return due date to the lastday of the 9th month after its tax year.
    • The above provisions apply to all three-year elections, including first-time elections and re-elections.
  • Flow-through entities whose deadline has already lapsed for the tax year beginning in 2024 may now elect for that tax year. Because this new election period is available only once PA 216 goes into effect, taxpayers should wait until April 2,2025, to submit a new election payment.
  • Any 2024 payment held by Treasury on April 2, 2025, will be automatically treated as a valid election on that date.
  • Flow-through entities that have not yet made a timely election into the tax year beginning in 2024 should wait until April 2, 2025, to file the 2024 FTE tax annual returns.
  • 2024 payments previously considered timely for election purposes remain valid election.
• Penalty and Interest based on estimated payments:
  • New rules also apply to penalties and interest for tax years beginning on or after January 1, 2024. Typically, an FTE taxpayer is required to make estimated payments during the tax year if their liability is reasonably expected to exceed $800 for the tax year, and penalty and interest apply to unpaid or underpaid estimates. Penalty and interest will generally not be assessed for any quarterly estimated payment due prior to the taxpayer making a valid election. For any quarterly estimate due on or after the taxpayer’s election, the taxpayer must timely pay those estimates to avoid penalty and interest.
• Deadline to fund the FTE Credit
  • If the FTE tax is not paid by a so-called “credit funding deadline”, that portion of the credits cannot be claimed by members until the tax year in which the FTE tax is paid.
  • Tax years beginning on or after January 1, 2024, the credit funding deadline so that the timing of the credits will now be based on the tax levied and paid, “on or before the date for the filing of the [FTE tax] annual return, including any extension.”
  • To the extent the tax is not paid by an FTE taxpayer’s return due date, claims of the resulting FTE tax credits must be delayed until the tax year in which that tax is paid. FTE taxpayers may still be subject to penalty and interest for tax paid after the initial due date.
  • A flow-through entity that elects the FTE tax after the return due date is presumed to have made a valid request to extend the date for filing the return due for that tax year. Therefore, the credit funding deadline for that tax year will be determined as of the extended due date of the return. However, these taxpayers will be subject to penalty and interest for any tax paid after the date of the election.

If you have any additional questions on this matter or anything else, please contact your Polk and Associates relationship manager.

Polk & Associates

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