Since 2018, with the enactment of the Tax Cuts and Jobs Act, the individual income tax Schedule A itemized deduction for state and local tax (SALT) has been limited to $10,000 ($5,000 for MFS). The $10,000 limit includes state and local income taxes, as well as property taxes.

As a workaround to this limitation, on December 20, 2021, Governor Whitmer signed into law PA 135 of 2021 to amend the Income Tax Act to create a flow-through entity tax (FET) in Michigan. The law is retroactive to January 1, 2021. The flow-through entity tax allows certain flow-through entities to elect to file a return and pay tax on income in Michigan (state and city) and allows members or owners of that entity to claim a refundable tax credit equal to the tax previously paid on that income. The FET is not available to disregarded entities (single member LLCs).

The taxes paid reduces the entity’s income and, therefore, the income reported by the owners, reducing federal taxable income. Subsequently, the tax is an add-back on the individual owner’s Michigan income tax return and a credit against the Michigan income tax.


Flow-through entities that wish to make the election do so by making a Michigan Treasury Online (MTO) electronic payment. Flow-through entities will need to establish an MTO account located at // A payment submitted timely through MTO will be deemed to be a valid election for the tax year specified on that payment. Once the election is made, it is irrevocable for the year of the election and next two successive tax years and the entity must continue to file a return and pay the tax.

The election must be made by the 15th day of the third month of the first tax year to which the election is to apply. For tax years beginning in 2021 only, the election must be made by April 15th, 2022, regardless of the tax year end. Calendar year flow-through entities that wants to make an election for three tax years beginning with the 2022 tax year must do so no later than March 15, 2022.


The tax is calculated on the business income tax base, subject to adjustments specified in the bill, allocable to owners who are individuals, flow-through entities, estates, or trusts. Owners that are C corporations, insurance companies or financial institutions are excluded. The FET rate is tied to Michigan’s individual income tax rate, currently, 4.25%.

Filing Requirements

An annual flow-through entity tax return will be required to be filed by the last day of the third month after the end of the taxpayer’s tax year (March 31 for calendar year filers). The return and any payment must be filed through MTO.

Estimated payments are required to be made quarterly if the annual tax liability is more than $800. For calendar year filers, the estimates must generally be made in equal installments on or before April 15, June 15, September 15, and January 15.

Questions? Reach out


Chris Iannuzzi, Tax Director | 248.641.0005