Michigan Pass-Through Entity Tax (PTET)

Why PTET matters in this state

Michigan's Flow-Through Entity (FTE) tax under MCL 206.813 is the state's PTET equivalent — branded 'FTE' rather than 'PTET' in Michigan Treasury parlance but mechanically equivalent to the SALT-cap workarounds in peer states. Michigan applies a flat 4.25% individual rate (with occasional temporary reductions to 4.05% triggered by statutory revenue thresholds), and the federal-deduction arbitrage is therefore smaller per dollar of allocated income than in high-rate states like California, New York, or Minnesota — but real and consistent, and unaffected by graduated-bracket arithmetic. Typical beneficiaries are Detroit-metro and Grand Rapids-area S-corp owners and partnership members whose personal SALT deduction is capped under IRC §164(b)(6) and whose K-1 income is materially Michigan-sourced. Michigan's structural differentiator versus peer states is the three-year binding election — once an entity elects, it is in for three years, not one. This is the planning consideration that distinguishes Michigan FTE from almost every other state's regime.

Election mechanics

The FTE election must be made by the 15th day of the 3rd month of the FTE's tax year — March 15 for calendar-year filers — under MCL 206.813. The deadline is unusually early relative to peer-state PTET deadlines, which more commonly key off the return due date including extensions; Michigan keys off the 3rd month of the tax year itself. The election is submitted electronically through Michigan Treasury Online (MTO); all FTE payments must also be made electronically. The annual return is Form 5772. The rate is 4.25% flat at the entity level (verify the operative 2026 rate against michigan.gov/taxes in case a statutory trigger has temporarily reduced it). Critically, the election is binding for three successive tax years once made — it cannot be revoked annually like in most peer states. Eligible entities are S-corps, partnerships, and LLCs taxed as either.

Owner credit walkthrough

The owner credit is refundable. Members claim a credit on their Michigan personal income tax return (Form MI-1040) equal to their share of FTE tax paid by the entity, with excess credit over tax due refundable as an overpayment under standard Michigan refund rules. Multi-owner allocation is pro rata by distributive share. The manifest does not pin precise credit-allocation form citations for this session; consult the Form 5772 instructions for the exact line-item mechanic and the Form MI-1040 schedule that carries the credit through to the personal return. Nonresident owners claim the credit similarly on their Michigan nonresident return.

2026 changes

No material 2026 Michigan FTE statutory changes pinned this session. The 4.25% individual rate is occasionally temporarily reduced (to 4.05%) by statutory trigger — verify the operative 2026 FTE rate against michigan.gov/taxes before electing.

Composite-return interaction

Michigan FTE stacks with composite filing rather than displacing it; the precise interaction is not pinned in the manifest for this session. For partnerships with nonresident members, the FTE-paid amount and any composite-return obligation should be reconciled with a preparer.

§199A QBI interaction

FTE tax reduces federal flow-through ordinary income per Notice 2020-75 and therefore the §199A QBI base by approximately 4.25% of allocated income — among the smaller QBI offsets in the verified state cohort, because Michigan's rate is among the lower flat rates. For non-SSTB owners outside the phaseout, the §199A offset against FTE's federal arbitrage is modest.