The Michigan Business Tax (MBT) instructions for Form 4570 state "Compensation includes expenses such as payroll taxes (exclusive of payments for state and federal unemployment compensation and federal insurance contributions) and all other fringe benefits made for the benefit of employees".

The question often asked is:  What payroll taxes are included in the calculation of the compensation credit?

There is a lot of confusion on this matter. I believe no payroll taxes are included in “compensation” for purposes of the compensation credit. Compensation is defined in Section 107(2) of the MBTA. (See below) Subparagraphs (c), (d) and (e) seem to rule out any form of payroll taxes. Please note the language “and similar social insurance programs” contained in subparagraph (d).

Compensation does not include any of the following:

(a) Discounts on the price of the taxpayer's merchandise or services sold to the taxpayer's employees, officers, or directors that are not available to other customers.

(b) Except as otherwise provided in this subsection, payments to an independent contractor.

(c) Payments to state and federal unemployment compensation funds.

(d) The employer's portion of payments under the federal insurance contributions act, chapter 21 of subtitle C of the internal revenue code, 26 USC 3101 to 3128, the railroad retirement tax act, chapter 22 of subtitle C of the internal revenue code, 26 USC 3201 to 3233, and similar social insurance programs.

(e) Payments, including self-insurance payments, for worker's compensation insurance or federal employers' liability act insurance pursuant to 45 USC 51 to 60.