Michigan Business Tax Underpayment Penalty

Before discussing the Michigan Business Tax Underpayment Penalty, let’s review the basic information about the Michigan Business Tax. MBT was implemented in 2008, replacing the SBT which is Single Business Tax. The Michigan Business tax, manufacturers and small business owners are encouraged to make an investment in the state through several tax credits and a decrease in the total tax liability.

Michigan Business Tax will depend on gross receipts and business income, and an additional surcharge. It also consists of several incentives and tax credits. This tax reform also drastically decreased property taxes that generated particular exemptions for commercial, personal and industrial property. Development or expansion of small businesses are pushed by MBT wherein a small businesses with gross receipts f $350,000 and below do not have to pay any tax or file a tax return. Other credits are present for smaller businesses in Michigan. The business income tax is evaluated on business activity that transpires in the state of Michigan. The tax base begins with a comparable gauge of income partnerships and S corporations or federal taxable income and the tax rate is 4.95 percent.

The company’s gross receipts will be the basis of the Modified Gross Receipts Tax, decrease purchases from other companies. Purchases from other companies consists inventory purchased within the tax year, certain supplies and materials and capital expenditures. There is a 0.8 percent tax rate. There is a particular provision that decreases the tax base for several tax payers like self-employed individuals, auto dealers, members of limited liability firms and partnerships and construction contractors. A fraction of particular taxes collected by a business are integrated in gross receipts until 2012. A surcharge is applicable to the allocated business gross receipt tax and income tax before credits and the rate is 21.99 percent.

Now that we have discussed about the basics of Michigan Business Tax, we can proceed to discussing the penalty and interest computation for tax payers who underpaid, or those who filed and paid the tax late.

Taxpayers can accomplish and submit Form 4528 to address and compute the penalty and interest of late filing, late payment or underpaying the tax. If the tax payer fails to accomplish the form, the Department of Treasury will calculate those penalties and interests that will apply and bill the tax payer.

Estimated payments and returns are obligatory from any tax payer who anticipates an annual Michigan Business Tax liability of greater than $800. If a tax payer is liable for an estimated tax and the estimated return with full imbursement is not submitted or is filed late, the penalty is an additional 5 percent of the total tax due for the first 2 months. Penalty accumulates by 5 percent every month, or a portion thereof, after the 2nd month to a max of 25 percent. If the tax payer failed to comply with estimated tax payments and none of the exceptions (which will be discussed in the next paragraph) are applicable, calculate the penalty for not filing and the interest due.

Below is the list of the exceptions and if any of these circumstances apply, then you do not need to pay the interest or penalty.

  • The annual tax on the present annual return is $800 or below.
  • The estimated payments that are made quarterly and the sum of all payments equals to 85% of the annual liability.
  • The total of estimated payments equals the annual tax on the previous year’s return, given that these payments were accomplished in 4 equal payments on time. Or 12 equal payments if paid on Sales, Use and Withholding returns and the previous year’s tax amount is $20,000 and below. IF the previous year’s tax liability was estimated for a period less that 1 year or 12 months, this rate must be annualized.

Here is the breakdown of the details of Form 4582 or Michigan Business Tax Penalty and Interest Computation for Underpaid Estimated Tax

  1. Estimated Tax Required – this portion requires that the tax payer enters 85 percent of the annual tax rate, the due date for each quarterly return, estimated tax for each quarter, the actual quarterly tax, and the total amount paid.
  2. Figuring Interest – The tax payer can compute the interest due for either underpayment or non filing of the required estimated tax in this portion of the form.
  3. Figuring Penalty – This portion requires the tax payer to compute for either underpayment or non filing of the required estimated tax.
  4. Annualization Worksheet – this portion significantly directs the tax payer through the process necessary to compute the actual MBT total due for the tax year to date. The tax liability is annualized and multiplied by the percentage of estimated payment due for that particular quarter.

How to Avoid Penalties and Interest in MBT

If the Michigan Business tax liability is $800 and above the tax payer must submit estimated quarterly returns and payments. The tax payer can opt to make payments through:

  1. Accomplishing Form 4548 (MBT Quarterly Return)
  2. Accomplishing Form 160 (Combined Return for Michigan Taxes) – if registered for Sales, Use and Withholding taxes.
  3. EFT or Electronic Funds Transfer

If filing every month utilizing Form 160, monthly payments may be made on the 20th day of the month. If the tax payer opted for quarterly payments using Form 160, MBT payment is due on the 15th. For tax payers who chose to pay through EFT, wherein there is no need to file for Form 160, MBT payments can be made every 20th day of the month next to the month’s end. You have to take note that debit transactions will not be eligible for EFT if the bank account that is utilized is funded by a foreign bank account. You have to contact your bank to confirm the status of your bank account.

The estimated MBT for the quarter should also approximate the liability for the quarter. The approximated payment made with every quarterly return should be the total approximated Modified Gross Receipts Tax and Business Income Tax for the quarter with additional surcharge or 25% of the approximated annual liability.