Bill Text: MI HB5661 | 2019-2020 | 100th Legislature | Introduced
Bill Title: Individual income tax: withholding requirements; opt-out provision of automatic withholdings for small businesses; provide for. Amend secs. 703 & 711 of 1967 PA 281 (MCL 206.703 - 206.711).
Spectrum: Partisan Bill (Republican 3-0)
Status: (Introduced - Dead) 2020-03-25 - Bill Electronically Reproduced 03/25/2020 [HB5661 Detail]
Download: Michigan-2019-HB5661-Introduced.html
HOUSE BILL NO. 5661
March 17, 2020, Introduced by Reps. Maddock,
Wozniak and Eisen and referred to the Committee on Commerce and Tourism.
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967",
by amending sections 703 and 711 (MCL 206.703 and 206.711), section 703 as amended by 2016 PA 158 and section 711 as amended by 2018 PA 118.
the people of the state of michigan enact:
Sec. 703. (1) A person who disburses pension or
annuity payments, except as otherwise provided under this section, shall
withhold a tax in an amount computed by applying the rate prescribed in section
51 on the taxable part of payments from an employer pension, annuity,
profit-sharing, stock bonus, or other deferred compensation plan as well as
from an individual retirement arrangement, an annuity, an endowment, or a life
insurance contract issued by a life insurance company. Withholding shall be
calculated on the taxable disbursement after deducting from the taxable portion
the same proportion of the total amount of personal and dependency exemptions
of the individual allowed under this act. Withholding is not required on any
part of a distribution that is not expected to be includable in the recipient's
gross income or that is deductible from adjusted gross income under section
30(1)(e) or (f).
(2) Every employer in
this state required under the provisions of the internal revenue code to
withhold a tax on the compensation of an individual, except as otherwise
provided, shall deduct and withhold a tax in an amount computed by applying,
except as provided by subsection (14), the rate prescribed in section 51 to the
remainder of the compensation after deducting from compensation the same proportion
of the total amount of personal and dependency exemptions of the individual
allowed under this act that the period of time covered by the compensation is
of 1 year. The department may prescribe withholding tables that may be used by
employers to compute the amount of tax required to be withheld. Beginning on and after January 1, 2020, an employer
that has 50 employees or fewer may elect not to withhold the tax required under
this act on the compensation of an individual. An employer that elects not to
deduct and withhold the tax required under this act on the compensation of its
employees pursuant to this subsection shall notify the department, in a form
and manner as prescribed by the department, and provide a copy of that
notification to each employee.
(3) Except as otherwise
provided under this section, for tax years that begin before July 1, 2016,
every flow-through entity in this state shall withhold a tax in an amount
computed by applying the rate prescribed in section 51 to the distributive
share of taxable income reasonably expected to accrue after allocation and
apportionment under chapter 3 of each nonresident member who is an individual
after deducting from that distributive income the same proportion of the total
amount of personal and dependency exemptions of the individual allowed under
this act. All of the taxes withheld under this section shall accrue to the
state on April 15, July 15, and October 15 of the flow-through entity's tax
year and January 15 of the following year, except a flow-through entity that is
not on a calendar year basis shall substitute the appropriate due dates in the
flow-through entity's fiscal year that correspond to those in a calendar year.
Withholding for each period shall be equal to 1/4 of the total withholding
calculated on the distributive share that is reasonably expected to accrue
during the tax year of the flow-through entity.
(4) Except as otherwise
provided under this section, for tax years that begin before July 1, 2016,
every flow-through entity with business activity in this state that has more
than $200,000.00 of business income reasonably expected to accrue in the tax
year after allocation or apportionment shall withhold a tax in an amount
computed by applying the rate prescribed in section 623 to the distributive
share of the business income of each member that is a corporation or that is a
flow-through entity. For purposes of calculating the $200,000.00 withholding
threshold, the business income of a flow-through entity shall be apportioned to
this state by multiplying the business income by the sales factor of the
flow-through entity. The sales factor of the flow-through entity is a fraction,
the numerator of which is the total sales of the flow-through entity in this
state during the tax year and the denominator of which is the total sales of
the flow-through entity everywhere during the tax year. As used in this
subsection, "business income" means that term as defined in section
603(2). For a partnership or S corporation, business income includes payments
and items of income and expense that are attributable to business activity of
the partnership or S corporation and separately reported to the members. As
used in this subsection, "sales" means that term as defined in
section 609 and sales in this state is determined as provided in sections 665
and 669. All of the taxes withheld under this section shall accrue to the state
on April 15, July 15, and October 15 of the flow-through entity's tax year and
January 15 of the following year, except a flow-through entity that is not on a
calendar year basis shall substitute the appropriate due dates in the
flow-through entity's fiscal year that correspond to those in a calendar year.
Withholding for each period shall be equal to 1/4 of the total withholding
calculated on the distributive share of business income that is reasonably
expected to accrue during the tax year of the flow-through entity.
(5) For tax years that
begin before July 1, 2016, if a flow-through entity is subject to the
withholding requirements of subsection (4), then a member of that flow-through
entity that is itself a flow-through entity shall withhold a tax on the
distributive share of business income as described in subsection (4) of each of
its members. The department shall apply tax withheld by a flow-through entity
on the distributive share of business income of a member flow-through entity to
the withholding required of that member flow-through entity. All of the taxes
withheld under this section shall accrue to the state on April 15, July 15, and
October 15 of the flow-through entity's tax year and January 15 of the
following year, except a flow-through entity that is not on a calendar year
basis shall substitute the appropriate due dates in the flow-through entity's
fiscal year that correspond to those in a calendar year. Withholding for each
period shall be equal to 1/4 of the total withholding calculated on the
distributive share of business income that is reasonably expected to accrue
during the tax year of the flow-through entity.
(6) Every casino licensee
shall withhold a tax in an amount computed by applying the rate prescribed in
section 51 to the winnings of a nonresident reportable by the casino licensee
under the internal revenue code.
(7) Every race meeting
licensee or track licensee shall withhold a tax in an amount computed by
applying the rate prescribed in section 51 to a payoff price on a winning
ticket of a nonresident reportable by the race meeting licensee or track
licensee under the internal revenue code that is the result of pari-mutuel
wagering at a licensed race meeting.
(8) Every casino licensee
or race meeting licensee or track licensee shall report winnings of a resident
reportable by the casino licensee or race meeting licensee or track licensee
under the internal revenue code to the department in the same manner and format
as required under the internal revenue code.
(9) Every eligible
production company shall, to the extent not withheld by a professional services
corporation or professional employer organization, deduct and withhold a tax in
an amount computed by applying the rate prescribed in section 51 to the
remainder of the payments made to the professional services corporation or
professional employer organization for the services of a performing artist or
crew member after deducting from those payments the same proportion of the
total amount of personal and dependency exemptions of the individuals allowed
under this act.
(10) Every publicly
traded partnership that has equity securities registered with the securities
and exchange commission under section 12 of title I of the securities and
exchange act of 1934, 15 USC 78l, shall not be
subject to withholding.
(11) Except as otherwise provided under this subsection, all
of the taxes withheld under this section shall accrue to the state on the last
day of the month in which the taxes are withheld but shall be returned and paid
to the department by the employer, eligible production company, casino
licensee, or race meeting licensee or track licensee within 15 days after the
end of any month or as provided in section 705. For an employer that has
entered into an agreement with a community college pursuant to chapter 13 of
the community college act of 1966, 1966 PA 331, MCL 389.161 to 389.166, a
portion of the taxes withheld under this section that are attributable to each
employee in a new job created pursuant to the agreement shall accrue to the
community college on the last day of the month in which the taxes are withheld
but shall be returned and paid to the community college by the employer within
15 days after the end of any month or as provided in section 705 for as long as
the agreement remains in effect. For purposes of this act and 1941 PA 122, MCL
205.1 to 205.31, payments made by an employer to a community college under this
subsection shall be considered income taxes paid to this state.
(12) A person required by this section to deduct and withhold
taxes on income under this section holds the amount of tax withheld as a
trustee for this state and is liable for the payment of the tax to this state
or, if applicable, to the community college and is not liable to any individual
for the amount of the payment.
(13) An employer in this state is not required to deduct and
withhold a tax on the compensation paid to a nonresident individual employee,
who, under section 256, may claim a tax credit equal to or in excess of the tax
estimated to be due for the tax year or is exempted from liability for the tax
imposed by this act. In each tax year, the nonresident individual shall furnish
to the employer, on a form approved by the department, a verified statement of
nonresidence.
(14) A person required to withhold a tax under this act, by
the fifteenth day of the following month, shall provide the department with a copy
of any exemption certificate on which a person with income subject to
withholding under subsection (6) or (7) claims more than 9 personal or
dependency exemptions, claims a status that exempts the person subject to
withholding under subsection (6) or (7) from withholding under this section.
(15) A person who disburses annuity payments pursuant to the
terms of a qualified charitable gift annuity is not required to deduct and
withhold a tax on those payments as prescribed under subsection (1). As used in
this subsection, "qualified charitable gift annuity" means an annuity
described under section 501(m)(5) of the internal revenue code and issued by an
organization exempt under section 501(c)(3) of the internal revenue code.
(16) Notwithstanding the requirements of subsections (4) and
(5), if a flow-through entity receives an exemption certificate from a member
other than a nonresident individual, the flow-through entity shall not withhold
a tax on the distributive share of the business income of that member if all of
the following conditions are met:
(a) The exemption certificate is completed by the member in
the form and manner prescribed by the department and certifies that the member
will do all of the following:
(i) File the returns
required under this act.
(ii) Pay or withhold
the tax required under this act on the distributive share of the business
income received from any flow-through entity in which the member has an
ownership or beneficial interest, directly or indirectly through 1 or more
other flow-through entities.
(iii) Submit to the
taxing jurisdiction of this state for purposes of collection of the tax under
this act together with related interest and penalties under 1941 PA 122, MCL
205.1 to 205.31, imposed on the member with respect to the distributive share
of the business income of that member.
(b) The department may require the member to file the
exemption certificate with the department and provide a copy to the
flow-through entity.
(c) The department may require a flow-through entity that
receives an exemption certificate to attach a copy of the exemption certificate
to the annual reconciliation return as required by section 711. A flow-through
entity that is entirely exempt from the withholding requirements of subsection
(4) or (5) by this subsection may be required to furnish a copy of the
exemption certificate in another manner prescribed by the department.
(d) A copy of the exemption certificate shall be retained by
the member and flow-through entity and made available to the department upon
request. Any copy of the exemption certificate shall be maintained in a format
and for the period required by 1941 PA 122, MCL 205.1 to 205.31.
(17) The department may revoke the election provided for in
subsection (16) if it determines that the member or a flow-through entity is
not abiding by the terms of the exemption certificate or the requirements of
subsection (16). If the department does revoke the election option under
subsection (16), the department shall notify the affected flow-through entity
that withholding is required on the member under subsection (4) or (5),
beginning 60 days after notice of revocation is received.
(18) Notwithstanding the requirements of subsections (4) and
(5), a flow-through entity is not required to withhold in accordance with this
section for a member that voluntarily elects to file a return and pay the tax
imposed by the Michigan business tax act under section 680 or section 500 of
the Michigan business tax act, 2007 PA 36, MCL 208.1500.
(19) Notwithstanding the withholding requirements of
subsection (3), (4), or (5), a flow-through entity is not required to comply
with those withholding requirements to the extent that the withholding would
violate any of the following:
(a) Housing assistance payment programs distribution
restrictions under 24 CFR part 880, 881, 883, or 891.
(b) Rural housing service return on investment restrictions
under 7 CFR 3560.68 or 3560.305.
(c) Articles of incorporation or other document of
organization adopted pursuant to section 83 or 93 of the state housing
development authority act of 1966, 1966 PA 346, MCL 125.1483 and 125.1493.
Sec. 711. (1) Every Regardless of whether the person
elects not to deduct and withhold taxes as provided under section 703(2), every
person required by this part to deduct and withhold taxes for a
tax year on income other than distributive share of income from a flow-through
entity shall furnish to the person who received the income a statement in
duplicate on or before January 31 of the succeeding year of the total income
paid during the tax year and the amount deducted or withheld. However, if
employment is terminated before the close of a calendar year by a person that
goes out of business or permanently ceases to exist, then the statement
required by this subsection shall be issued within 30 days after the last
compensation, winnings, or payoff of a winning ticket is paid. A duplicate of a
statement made pursuant to this section and an annual reconciliation return,
MI-W3, shall be filed with the department by February 28 of the succeeding year
for tax years before the 2018 tax year and by January 31 of the succeeding year
for the 2018 tax year and each tax year after 2018 except that a person that
goes out of business or permanently ceases to exist shall file the statement
and the annual reconciliation return within 30 days after going out of business
or permanently ceasing to exist. For tax years that begin before July 1, 2016,
a flow-through entity that was required to withhold taxes on distributive
shares of business income shall file an annual reconciliation return with the
department no later than the last day of the second month following the end of
the flow-through entity's federal tax year. The department may require a
flow-through entity to file an annual business income information return with
the department on the due date, including extensions, of its annual federal
information return.
(2) Every Regardless of whether the person
elects not to deduct and withhold taxes as provided under section 703(2), every
person required by this part to deduct or withhold taxes shall
make a return or report in form and content and at times as prescribed by the
department. An employer that has more than 250 employees shall file its annual
return or report required under this section in electronic form. An employer
that has entered into an agreement with a community college pursuant to chapter
13 of the community college act of 1966, 1966 PA 331, MCL 389.161 to 389.166,
and is required to deduct or withhold taxes from compensation and make payments
to a community college pursuant to the agreement for a portion of those taxes
withheld shall, for as long as the agreement remains in effect, delineate in
the return or report required under this subsection between the amount deducted
or withheld and paid to the state and that amount paid to a community college.
An employer that has entered into a written agreement pursuant to the good jobs
for Michigan program created under section 90h of the Michigan strategic fund
act, 1984 PA 270, MCL 125.2090h, shall, for as long as the written agreement
remains in effect, delineate in the return or report required under this
subsection the portion of those taxes withheld and paid to the state that are
attributable to certified new jobs.
(3) Every person who receives income subject to withholding
under this part shall furnish to the person required by this part to deduct and
withhold taxes information required to make an accurate withholding. A person
who receives income subject to withholding under this part shall file with the
person required by this part to deduct and withhold taxes revised information
within 10 days after a decrease in the number of exemptions or a change in
status from a nonresident to a resident. The person who receives income subject
to withholding under this part may file revised information when the number of
exemptions increases or when a change in status occurs from that of a resident
of this state to a nonresident of this state. Revised information shall not be
given retroactive effect for withholding purposes. A person required by this
part to deduct and withhold taxes shall rely on this information for
withholding purposes unless directed by the department to withhold on some
other basis. If a person who receives income subject to withholding under this
part fails or refuses to furnish information, the person required by this part
to deduct and withhold taxes shall withhold at the full rate of tax from the
person's income subject to withholding under this part.