Written by: Scot Smith, CPA

NEW MICHIGAN CORPORATE INCOME TAX (CIT) EFFECTIVE JANUARY 1, 2012

With the new Michigan Corporate Income Tax replacing the old Michigan Business Tax effective January 1, 2012 we want to inform you of a new law regarding flow-through income tax withholding responsibilities:

Michigan based partnerships, “S” corporations and Limited Liability Companies (also known as flow-through entities) are now required to withhold and pay Michigan corporate income tax on a quarterly basis at a rate of 6%, if:

  • The partner, shareholder or member (K-1 recipient) is a “C” corporation, and
  • The business income of the flow-through entity is over $200,000.

Michigan business income is Federal taxable income adding back bonus depreciation and the domestic production activities deduction, if any. Withholding and payment of income taxes is required quarterly based on the K-1 recipients’ distributive share of income, using Form 4917. In addition, the withholding requirement only applies to Michigan-based sales, so a proration will be necessary if there are sales in other states.

If the flow-through entity has K-1 recipients who are also flow-through entities, it must be determined who the ultimate taxpayer is to determine if there should be Michigan corporate income tax withheld at 6% or Michigan individual income tax withheld at 4.35%.

OLD LAW REGARDING NON-RESIDENT MICHIGAN WITHHOLDING

If the K-1 recipient is a Michigan non-resident individual, the flow-through entity is required to withhold and remit Michigan income tax at a rate of 4.35% on their distributive share of income regardless of the amount of the flow-through entity’s business income.

In addition to the quarterly forms and remittances noted above (Form 4917), Form 4918, Annual Withholding Reconciliation Return is due by February 28th.