Michigan Flow-Through Entity Tax: the September 30 Election Deadline, Electing by Payment in MTO, the Three-Year Commitment and the $800 Estimate Rule

2026-10-11 · RKube Services

Michigan FTE tax: elect by MTO payment by September 30, the three-year commitment, the $800 estimate rule and a worked Grand Rapids example.

Michigan's flow-through entity (FTE) tax works differently from most states' SALT workarounds. There's no election form. You elect by making an electronic payment through Michigan Treasury Online (MTO). The deadline is generous: for tax years beginning in 2024 or later, a calendar-year business has until September 30 of the following year. And the election doesn't cover one year. It covers three.

That combination gives owners of S corporations and partnerships in Detroit, Grand Rapids, Ann Arbor and Lansing more time to decide than they get almost anywhere else, plus a longer commitment once they do. This guide covers who can elect, how the election and the estimates work, a worked example, and the dates for the 2026 tax year.

The details come from Michigan Treasury's FTE tax page and its FTE tax FAQ, checked in October 2026.

How the FTE tax works

Michigan levies the FTE tax on an electing entity's Michigan business income tax base, the share of business income that belongs to members taxed in Michigan. The rate matches the Michigan individual income tax rate. Treasury's notices list 4.25% for tax years beginning in 2024, after the courts concluded that the 2023 cut to 4.05% was temporary. Confirm the 2026 rate on Form 5772 when you file.

The entity pays the tax and deducts it federally, which reduces the income passed to owners. The owners then get a refundable Michigan income tax credit for their share of the tax the entity paid. Because the payment is a business expense at the entity level, it isn't subject to the individual federal SALT cap.

If the business income tax base is zero or negative, no FTE tax is due for that year.

Who can elect

Eligible entities are S corporations and partnerships for federal tax purposes, which includes:

• LLCs that file federal returns as partnerships,
• general partnerships, limited partnerships and LLPs, and
• S corporations, including LLCs taxed as S corporations.

Not eligible: sole proprietorships, C corporations, single-member LLCs that are disregarded for federal tax, LLCs that file as C corporations, publicly traded partnerships and flow-through entities subject to Michigan's financial institutions tax.

How to elect: a payment, not a form

The election is made only by submitting an electronic payment to Treasury through MTO. A written election statement, or a payment sent any other way, is not a valid election.

Three rules come with it:

1. It covers three tax years: the year the payment is directed to and the next two.
2. It's irrevocable once made.
3. The election payment must be directed to the first year of the three-year period.

When the three years end, the entity has to make a new election to keep paying the tax.

The deadline: nine months after year end

For tax years beginning on or after January 1, 2024, 2024 PA 216 moved the election deadline to the last day of the ninth month after the end of the tax year. For calendar-year entities:

Before 2024, the deadline was the 15th day of the third month of the tax year itself, so older articles and some Treasury pages still mention March 15. That rule applies only to tax years 2021 through 2023.

One catch with electing late: if you elect after the annual return's due date, you must pay the full annual liability for that first year on the day you elect, or penalty and interest apply.

Estimated payments and the catch-up rule

Once an entity has elected, it must make estimated payments each year its annual FTE liability is reasonably expected to exceed $800. For calendar-year filers, the estimates are due in equal installments on April 15, June 15, September 15 and January 15.

Two rules govern estimates around the election itself:

• Before you elect, no estimates are required. An entity isn't a taxpayer until it validly elects. Effective April 2, 2025, the statute says penalty and interest aren't assessed for quarterly estimates due before the election.
• After you elect, you catch up. Treasury's FAQ says that by the first quarterly due date after the election, the entity must have paid its estimated liability for that quarter and all earlier quarters of that tax year, or penalty and interest apply.

Because the election covers three years, this matters most for the second year. A calendar-year business that elects for 2026 in September 2027 is also in the FTE tax for 2027, so its 2027 estimates need to catch up by the next quarterly date after it elects.

The annual return: Form 5772

Every electing entity files an annual return, Form 5772, by the last day of the third month after the tax year ends: Wednesday, March 31, 2027 for calendar 2026. There's no minimum-liability exception, and the return is required even if estimates covered the full tax. A six-month extension to September 30 is available on application, but any unpaid tax must still be paid by the original due date.

Starting with 2025 returns, members report their FTE credit information on Forms 6072 and 6074 and attach them to their MI-1040 or MI-1041. Treasury says credits will be denied without that information, so entities need to send members the numbers they need.

Michigan has also decoupled from several federal provisions in the 2025 federal tax law, starting generally with tax year 2025. The adjustment is on Form 5772 line 11.

Worked example: two Grand Rapids S corporations

Both examples assume a 4.25% rate, two equal owners who are Michigan residents, and all income from Michigan. The federal effect depends on whether each owner's SALT deduction is capped.

A Grand Rapids engineering firm with $900,000 of Michigan business income. Each owner's share is $450,000.

Under the 2025 federal law, the SALT cap is $40,000 for many filers and phases down above about $500,000 of modified adjusted gross income. At $450,000 each, these owners may already deduct their Michigan income tax and property tax under the higher cap. If so, the federal saving is much smaller than the $13,388 ceiling, and the three-year commitment may not be worth it.

A Grand Rapids distribution company with $1,400,000 of Michigan business income. Each owner's share is $700,000, which puts both at the $10,000 SALT floor.

For these owners, electing is clearly worth it, and the three-year term is fine as long as income stays in that range.

These examples are simplified. They ignore apportionment, the decoupling adjustments and differences in the owners' other income.

How to decide for 2026

1. Close 2026 books early in 2027 so you know the actual Michigan business income.
2. Check each owner's SALT position for 2026, 2027 and 2028, since the election covers all three.
3. Look at the three-year outlook. A big 2026 followed by smaller expected years could make the commitment a poor fit.
4. If you elect, make the election payment in MTO directed to tax year 2026, by September 30, 2027, and pay the full 2026 liability if you're past March 31, 2027.
5. Set up 2027 and 2028 estimates if liability will exceed $800, including the catch-up payment.
6. Send members the information for Forms 6072 and 6074.

Common questions about the Michigan (MI) FTE tax

Can we elect for just one year? No. The election covers three tax years and is irrevocable.

Our LLC has one member. Can it elect? Only if it's taxed as an S corporation. A disregarded single-member LLC is not eligible.

Do members still file Michigan returns? Yes. Members must still meet their own filing and reporting requirements to claim the refundable credit.

We missed September 30, 2026 for tax year 2025. Is there anything left? For the 2025 tax year, the window has closed. You can still elect for 2026 by September 30, 2027, which would also cover 2027 and 2028.

Is the FTE tax rate fixed at 4.25%? It follows the individual income tax rate, so it can change. Use the rate printed on the current year's Form 5772.

This guide is general information based on Michigan Treasury guidance as of October 2026. Treasury has also posted an FTE election relief notice related to the 2025 federal tax law, so check whether it applies to your entity.

Make the Michigan election on real numbers

RKube Services handles bookkeeping and tax prep for small businesses across the US and Canada, including S corporations and partnerships in Detroit, Grand Rapids, Ann Arbor and Lansing. We close your books early, so you know your Michigan business income and each owner's SALT position well before the September 30 deadline. Start with a free scoping call and a 30-day trial: call (984) 234-7030 or reach us through rkubeservices.com.