Legislative Analysis
Phone: (517) 373-8080
FLOW-THROUGH ENTITY TAX MODIFICATIONS
http://www.house.mi.gov/hfa
House Bill 5022 (H-2) as reported from committee Analysis available at
Sponsor: Rep. Alabas Farhat http://www.legislature.mi.gov
Committee: Tax Policy
Complete to 12-7-24
SUMMARY:
House Bill 5022 would amend the Income Tax Act to change provisions relating to the flow-
through entity tax, including the conditions under which penalties and interest are not assessed
and the date on which a taxpayer must elect pay the tax.
Electing to pay the flow-through entity tax
Currently, a taxpayer that elects to pay the flow-through entity tax must file their election with
the Department of Treasury on or before March 15 of that tax year.
Under the bill, for tax years beginning on or after January 1, 2024, a flow-through entity would
be required to file its election with the department before the last day of the ninth month after
the end of the tax year.
The bill would also provide that if a person’s election to pay the flow-through entity tax is
denied by the department, the person could file a written notice with the department within 60
days and be entitled to an informal conference on the question in the same manner as provided
in 1941 PA 122. 1
Penalties and interest
Currently, the act requires taxpayers that elect to file under the flow-through entity tax with an
expected liability of at least $800 to file an estimated return and pay the estimated tax in each
quarter of the tax year. If the taxpayer’s liability for the preceding tax year was less than
$20,000 and the taxpayer made four equal payments equal to the previous year’s liability,
interest penalties provide under the bill are not assessed.
Under the bill, the following would apply beginning in the 2024 tax year:
• Interest and penalties would not be assess if the taxpayer submitted four equal
payments totaling at least one of the following:
o 90% of the taxpayer’s current year tax liability.
o 100% of the taxpayer’s previous year tax liability.
• Interest and penalties would not be assessed for any quarterly estimated payment due
prior to the taxpayer making the election to flow-through entity tax for that tax year,
unless the department determines that the deficiency is due to the taxpayer’s intentional
disregard of the law.
1
https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-205-21
House Fiscal Agency Page 1 of 3
 Required disclosures
The act currently requires flow-through entities that do not elect to pay the flow-through entity
tax to provide certain listed information to any member the information is required to be
provided to by the Internal Revenue Code, including the member’s share of the flow-through
tax imposed on the taxpayer and paid by the fifteenth day of the third month after the end of
the tax year.
The bill would amend this requirement so that, for tax years beginning on or after January 1,
2024, the disclosure must include information about the member’s share of the flow-through
tax that was paid on or before the date for the filing of the flow-through entities annual return
for that tax year, including any extension.
The bill would also newly require that this disclosure be filed in a form and manner prescribed
by the Department of Treasury and that it include any other information the department
determines to be necessary for the filing of a direct or indirect member’s tax return.
Reasonable proof to claim credit
The act currently allows an individual that elects to pay the flow-through tax to claim a credit
against their individual or corporate income tax liability for the amount of flow-through tax
paid.
The bill would allow the Department of Treasury to require reasonable proof from the taxpayer
related to a claimed credit, or any other information required by the department to administer
the credit.
MCL 206.254 et seq.
BACKGROUND:
The flow-through entity tax was created, retroactive to the 2021 tax year, by 2021 PA 135. The
tax allows flow-through entities (e.g., S corporations or partnerships) to deduct state and local
taxes beyond the $10,000 cap for federal individual income taxes. 2,3
According to committee testimony, the bill is intended to address several potential issues that
have been found with the current statute during the first years of implementation. Supporters
argue that the bill will benefit both tax filers and the Department of Treasury.
FISCAL IMPACT:
House Bill 5022 is not expected to have a significant impact on state revenues or Department
of Treasury administrative costs.
POSITIONS:
Representatives of the following entities testified in support of the bill (12-4-24):
• Department of Treasury
2
https://www.michigan.gov/taxes/business-taxes/flowthrough-entity-tax/frequently-asked-questions
3
http://legislature.mi.gov/doc.aspx?2021-HB-5376
House Fiscal Agency HB 5022 (H-2) as reported Page 2 of 3
 • Michigan Association of CPAs
The following entities indicated support for the bill (12-4-24):
• National Federation of Independent Businesses
• Michigan Manufacturers Association
Legislative Analyst: Alex Stegbauer
Fiscal Analyst: Ben Gielczyk
■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their
deliberations and does not constitute an official statement of legislative intent.
House Fiscal Agency HB 5022 (H-2) as reported Page 3 of 3


Statutes affected:
Substitute (H-2): 206.813
House Introduced Bill: 206.813
As Passed by the House: 206.813
As Passed by the Senate: 206.813
House Concurred Bill: 206.813