Michigan: SALT cap workaround available for 2021 tax year; payments accepted starting December 29, 2021

Michigan House Bill 5376 allows a partnership or S corporation to elect to pay a “flow-through entity tax”

Payments accepted starting December 29, 2021

Michigan House Bill 5376 allows a partnership or S corporation (passthrough entity) to elect to pay a “flow-through entity tax.”

  • The election is effective retroactively to tax years beginning on or after January 1, 2021.
  • The election is not available to publicly traded partnerships or entities treated as disregarded entities for federal income tax purposes.

House Bill 5376 was signed into law on December 20, 2021. 


The tax base for the “flow-through entity tax” includes the positive business income of owners who are individuals, passthrough entities, estates, and trusts, but not including distributive allocations of loss to a particular owner or the distributive or prorated income allocation to an owner that is a corporation, insurance company or financial institution.

Owners of an electing passthrough entity will receive a refundable credit in an amount equal to the owner’s allocated share of the tax as reported to the owner by the passthrough entity. 

How to make the election

A payment made through the Michigan Treasury Online (MTO) system will be deemed a valid election to be subject to the “flow-through entity tax” for the tax year specified on the payment. Once an election is made, it is irrevocable and is in effect for the next two subsequent years. Therefore, if an election is made for tax year 2021, this also makes an election to remain subject to the “flow-through entity tax” for tax years 2022 and 2023.

If a passthrough entity determines not to elect for tax year 2021, the next opportunity to elect will be for tax year 2022 (which will then also be effective for tax years 2023 and 2024), with that election due on March 15, 2022, for calendar year taxpayers. The availability of a “flow-through entity tax” election will remain available as long as the individual deduction for taxes is limited by a SALT cap under IRC section 164(b)(6)(B).

To qualify for a federal tax deduction in 2021, certain taxpayers will need to make a “flow-through entity tax” payment during the 2021 calendar year. 

The Michigan Department of Treasury on December 22, 2021, issued guidance on making such payments, noting that all payments must be submitted through the MTO website.

The Michigan Department of Treasury indicated that the system would start accepting payments on December 29, 2021. Additional information will be posted directly on the MTO website once payments can be made. 

If a passthrough entity does not make a payment of flow-through entity tax during the 2021 calendar year, this could affect the timing of the related tax deduction. The payment for tax year 2021 can be made timely until March 30, 2022, for calendar year taxpayers or can be made up until the extended due date but with interest imposed on the amount unpaid during the extension period.

The “flow-through entity tax” has estimated payment requirements, but the Michigan Department of Treasury has not yet released guidance about how it will handle the tax year 2021 estimated payments due before the enactment of House Bill 5376.

Payments submitted outside the MTO website will not be accepted and will not be considered a valid election. Other payments (e.g., composite return payments) will not be applied toward the “flow-through entity tax” and will not constitute an election into the tax.

The Michigan Department of Treasury indicated that it expects to publish additional guidance on the “flow-through entity tax” in early 2022.

For more information, contact a KPMG State and Local Tax professional:

Dan De Jong | ddejong@kpmg.com

Brad Wilhelmson | bwilhelmson@kpmg.com


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