Limits withholding to tax years beginning before July 1, 2016
On June 9, 2016, Michigan Gov. Rick Snyder signed House Bill 5131 ending flow-through entity withholding for tax years beginning on or after July 1, 2016.
Currently, Michigan law imposes several withholding requirements on flow-through entities. A flow-through entity with nonresident individual owners is required to withhold Michigan tax on the distributive share of Michigan income for each such owner. Additionally, every flow-through entity expecting more than $200,000 of Michigan business in the year are required to withhold Michigan tax on the distributive share of income for each owner that is a corporation or another flow-through entity. In the case of tiered flow-through entity structures, the withholding is required at each tier level. Effective for tax years beginning on or after July 1, 2016, those members or shareholders are expected to pay their estimated taxes directly to the state.
House Bill 5131 also includes a new requirement that any person required to deduct and withhold taxes for a tax year on income other than distributive share of income from a flow-through entity must furnish to the person who received the income a statement of the total income paid during the tax year and the amount deducted or withheld by Jan. 31 of the next year. Additionally, the bill simplifies the definition of taxpayer to include any person subject to the individual income tax or subject to the withholding requirements under the flow-through withholding section.
House Bill 5131 aims to ease the administrative requirements on flow-through entities by shifting the withholding requirements to the individual. Michigan flow-through entities should be aware that the withholding requirements remain in effect for tax years beginning before July 1, 2016.