Every Flow-Through Entity in Michigan Must Withhold on Every Nonresident Individual or Trust
The Michigan Department of Treasury has issued guidance (Withholding for Flow-Through Entities, Michigan Department of Treasury, April 2012) discussing withholding tax requirements for flow-through entities. A flow-through entity is an S corporation, partnership, limited partnership, limited liability partnership, or a limited liability company not taxed as a corporation.
Every flow-through entity in Michigan must withhold on every member that is a nonresident individual or trust. This withholding is calculated at the personal income tax rate on the distributive share of taxable income reasonably expected to accrue, after allocation or apportionment, to the nonresident. Furthermore, a flow-through entity with business activity in Michigan that reasonably expects to accrue more than $200,000 in apportioned or allocated business income for the tax year must withhold on the distributive share of each member that is a corporation at the corporate income tax rate. Finally, a flow-through entity with business activity in Michigan that reasonably expects to accrue more than $200,000 in apportioned or allocated business income for the tax year must also withhold on the distributive share of each member that is a flow-through entity. This withholding is usually calculated at the corporate income tax rate with the exception that if the upper-tier flow-through entity can identity the ultimate taxpayer in a lower tier as a nonresident individual, then the personal income tax rate may be used. Also, no withholding is required if the ultimate taxpayer is a resident individual.
Quarterly returns (Form 4917, Flow-Through Withholding Quarterly Return) for a calendar year taxpayer are due April 15, July 15, October 15, and January 15. The annual reconciliation return (Form 4918, Flow-Through Withholding Annual Reconciliation Form) is due February 28. Fiscal year taxpayers should use corresponding due dates.