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Instructions for Form 4893
Michigan Corporate Income Tax (CIT) Small Business Alternative Credit
employer organizations must include the compensation of
Purpose
officers (of the operating company) and shareholders who
To allow taxpayers to calculate the Small Business Alternative receive compensation in determining the eligibility for
Credit (SBAC). The credit is calculated here and then carried to the SBAC even though their compensation is paid by the
the CIT Annual Return (Form 4891). professional employer organization.
The CIT Schedule of Shareholders and Officers (Form 4894) Tax Years Less Than 12 Months
also must be filed with a return to qualify for the SBAC. An If the reported tax year less is than 12 months, gross receipts,
SBAC claimed on Form 4893 will be denied if Form 4894 is adjusted business income, and shareholders’ and officers’
not included with the return. allocated income must be annualized to determine eligibility
A taxpayer is disqualified from taking the SBAC under certain and reduction percentage. Where those same amounts are
circumstances, which are detailed below. Financial institutions reported on SBAC forms, they are reported on forms as
and insurance companies are not eligible for this credit. actual, not annualized, amounts. If annualized gross receipts
For guidance in addition to these instructions, see Revenue exceed $19,000,000 but do not exceed $20,000,000, annualize
Administrative Bulletin (RAB) 2020-26 at www.michigan. amounts tocompute the Reduction Based on Gross Receipts,
gov/taxes. lines through 15 18.
NOTE: A person that is a disregarded entity for federal NOTE: If a shareholder owned stock for less than the entire tax
income tax purposes under the Internal Revenue Code shall be year ofthe corporation, or an officer served as an officer less
classified as a disregarded entity for the purposes of filing the than the entire tax year:
CIT annual return. • purposes of determining credit disqualifiers and credit
For
reduction, compensation and director fees must be annualized.
Eligibility for the SBAC
The determination of credit disqualifiers and credit reduction is
Taxpayers are not eligible for the SBAC if any of the following performed off-form.
conditions exist: • For purposes of determining active shareholders,
• Gross receipts exceed $20,000,000. compensation, director fees, and dividends must be annualized.
• Adjusted business income after loss adjustment exceeds The
determination of active shareholders is performed off-form.
$1,521,000 for Corporations (and LLCs federally taxed as Annualizing
such). Where annualization applies (see above NOTE ), multiply
• Any shareholder or officer has allocated income after loss each applicable amount, total gross receipts, adjusted business
adjustment overof $180,000, determinedas on Form 4894. income, and allocated income, by 12 and divide the result by
In addition, the SBAC is reduced if any of the following the
number of months in the tax year. Generally, a business
conditions exist: counts
a month if the business operated for more than half
the days of the month. If the tax year is less than one month,
• Gross receipts exceed $19,000,000 but are not more than consider the tax year to be one month for the purposes of the
$20,000,000. calculation.
• A shareholder or an officer has allocated income after loss
Loss Adjustment
adjustment of more than $160,000 but not over $180,000. This
If the adjusted business income was less than zero in any of
reduction is based on the officer/shareholder with the largest
allocated income. the
five tax years immediately preceding the tax year for which
a taxpayer is claiming an SBAC and an SBAC was received
Allocated income is the greater either:of for that same tax year, the taxpayer may be able reduceto the
(a) A shareholder or officer’s compensation and director fees current
year’s adjusted business income or allocated income
by the loss. See
from Form 4894, column L, or amounts CIT Loss Adjustment for the Small
Business Alternative Credit (Form 4895) for more details.
(b) A shareholder’s compensation, director fees, and share
If the SBAC is reduced or eliminated because gross receipts
of business income (or loss) after loss adjustment, from Form
4894, column N. exceed
$19,000,000, a loss adjustment cannot be used to prevent
that reduction or elimination. Similarly, if the SBAC is reduced
If either (a) or(b) is greater than $180,000 for any shareholder or eliminated due to compensation reported on Form 4894,
or officer, the taxpayer is not eligible for the SBAC. In addition, column L, a loss adjustment cannot be used to prevent that result.
if either (a) or (b) is over $160,000 but not more than $180,000
for any shareholder or officer, the taxpayer must reduce the Special Instructions for Unitary Business
SBAC based on the officer or shareholder with the largest Groups (UBGs)
allocated income.
UBGs calculate the gross receipts and adjusted business
NOTE: Taxpayers leasing employees from professional income disqualifiers at the UBG level AFTER intercompany
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