Key takeaways
- Michigan treats an S corporation as a flow-through entity, so the Michigan corporate income tax return does not apply unless the entity is taxed as a C corporation.
- The Michigan flow-through entity tax is elective, binds the entity for three tax years and can be elected as late as September 30, 2027 for tax year 2026.
- For tax year 2026 the federal Form 1120-S is due March 15, 2027, and the Michigan flow-through entity return, if elected, is due March 31, 2027.
- Nonresident shareholders either file their own Michigan individual returns or join a composite return, which is due April 15.
Why there is no Michigan S corporation return
Michigan's corporate income tax applies to a person required or electing to file as a C corporation under the Internal Revenue Code. An entity with a valid Form 2553 election is not that, so the CIT return is not on the S corporation's calendar. The Michigan Income Tax Act lists a subchapter S corporation in its definition of a flow-through entity, alongside partnerships, trusts and LLCs not taxed as corporations.
Do not carry this over to a client that lost S status or never had its Form 2553 accepted. If the entity files as a C corporation, the CIT question reopens, so confirm the acceptance letter is in the file before telling an owner that Michigan needs nothing at the entity level.
Form 1120-S and each shareholder's Schedule K-1 are still the base for everything below, and the Michigan tax year follows the federal one.
What replaced nonresident withholding
Older Michigan guidance, and many articles still ranking, describe withholding by the entity on nonresident shareholders. The statute limits that withholding to tax years that began before July 1, 2016, and the withholding section keyed to more than $200,000 of business income is limited the same way. For a 2026 return the rule requires no entity-level withholding on nonresident shareholders.
That does not remove the shareholder's own obligation. A nonresident shareholder with Michigan-source income from the S corporation generally has a Michigan individual return due on the fifteenth day of the fourth month, which is April 15, 2027 for 2026. If a client's prior-year file contains an old Michigan flow-through withholding workpaper, retire it and note why.
Treasury also has authority to require a flow-through entity to file an annual business income information return, so a notice asking for one is a request tied to that entity, not a standing filing.
The flow-through entity tax election
An S corporation may elect to pay the Michigan flow-through entity tax, and the entity-level payment is the Michigan version of a pass-through entity tax. The election is irrevocable and continues for the next two tax years, so it is a three-year decision. For tax years beginning on or after January 1, 2024 the election is due by the last day of the ninth month after the tax year ends, which is September 30, 2027 for a calendar-year 2026 election. Before 2024 the deadline was the fifteenth day of the third month, so any advice written for 2022 or 2023 is out of date.
Rate matters. The state's individual income tax rate is 4.25% in the statute, subject to a reduction formula for tax years beginning in 2023 and later, and the statute's history lists a 2026 amendment effective July 27, 2026. Confirm the rate Treasury publishes for tax year 2026 before you quote a payment amount to a client.
Illustration only: if the entity's Michigan tax base for 2026 is $200,000 and the rate you confirm is 4.25%, the entity-level tax is $8,500. Corporate, insurance and financial-institution members are excluded from the base, so the base is the portion allocable to individuals, trusts and other eligible owners, not total entity income.
The election exists to move state income tax into the entity, where it reduces entity income instead of falling under the individual SALT deduction cap. Whether that wins depends on each owner's itemizing position, so run both versions for tax year 2026 before recommending a three-year commitment.
Due dates for tax year 2026
Federal Form 1120-S for a calendar-year 2026 S corporation is due March 15, 2027, which is a Monday. The IRS instructions for tax year 2025 show the shift that happens when the date lands on a weekend, with the 2025 return due March 16, 2026 because March 15 was a Sunday. Form 7004, filed by the regular due date, requests an automatic six-month extension.
The Michigan flow-through entity return, for an entity that elected, is due the last day of the third month after year end, March 31, 2027. A federal extension plus a copy of the request, a tentative return and payment of estimated tax by March 31 extends filing to September 30, 2027. The extension covers filing only, so any balance not paid by March 31 accrues interest.
Composite returns are due on or before April 15 each year, and shareholders' own Michigan returns are due on the same date. Federal exposure is separate: the late-filing penalty on 2025 returns is $255 per shareholder per month, up to 12 months, and the 2026 amount will be in the 2026 instructions.
Small elections and the $100 rule
An entity that elected and ends up with liability of $100 or less does not file the full annual return. It files the information return the statute describes in section 711 instead, which is easy to miss in a loss year.
Composite returns for nonresident shareholders
A nonresident shareholder with Michigan income from the S corporation may elect to be included in a composite return filed by the entity. The entity reports and pays tax on the included shareholders' shares of income available for distribution, and a shareholder who also files an individual return can claim a credit for the tax paid on their behalf.
The composite return fits a client with several out-of-state owners who have no other Michigan activity, because it replaces a Michigan return for each of them. Do not offer it to a shareholder who has other Michigan income, since that person usually needs the individual return anyway. Ask each nonresident owner for a written yes or no, and keep the answer with the return.
The composite return is due April 15, 2027 for 2026, and it is a separate stream from the flow-through entity tax. Mixing the two payments is a common error, so label each deposit and keep both confirmations.
Documents to collect and what to send
Collect, per client: the Form 2553 acceptance letter, the signed Form 1120-S and every Schedule K-1, a shareholder list showing state of residence at year end and ownership percentage on each date it changed, the entity type of every owner, Michigan sales, payroll and property figures for the year, a copy of any Treasury election confirmation with the election year, and a signed composite election from each nonresident owner who wants one.
A message that works in November: "For your 2026 Michigan filings I need two things by December 15. First, tell me each owner's state of residence on December 31, and whether any owner is a corporation, trust or LLC. Second, tell me if you want me to compare Michigan's flow-through entity tax against paying at the owner level. The election binds you for three years, so I want the numbers in front of you before September 30, 2027." Send it in November so the answers are in before year end.
Decision rule: if every shareholder is an individual Michigan resident, the election is usually a question of the SALT cap and nothing else. If any owner is a nonresident, ask about composite versus individual returns. If any owner is itself an entity, ask what that entity is, because corporate members are carved out of the base.
Usual can send this as a request with a file field for the Form 2553 letter, a yes or no field for each composite election and a reminder schedule that stops when the item is marked complete.