Everything Michigan employers need to know about paying unemployment insurance taxes.
If your small company employs people in Michigan, you must pay the Michigan unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In Michigan, the state unemployment insurance levy is simply one of numerous taxes that companies must pay.
Varied states have different UI tax policies and rates. Here are the fundamental guidelines for Michigan’s UI tax.
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Register with the Treasury Department and the Unemployment Insurance Agency.
As a Michigan employer, you must open a Michigan unemployment insurance tax account with the state’s Unemployment Insurance Agency (UIA). The needed UIA Employer Account Number is obtained by enrolling with the Michigan Department of Treasury (DOT), either online or on paper. Use Michigan’s Business One Stop website to register online. Use Form 518, Registration for Michigan Taxes, to register on paper. Schedule A, Liability Questionnaire, and Schedule B, Successorship Questionnaire, must be included with your Form 518 for UI tax reasons. The Business Tax Registration area of the UIA website has a blank form with all relevant schedules and instructions that you may download. There is no cost to register your company with the DOT or the UIA.
You will need a federal employer identification number to set up your Michigan UI tax account (EIN). You may get an EIN by visiting IRS.gov. In most cases, if you apply online, you will obtain your EIN very instantly.
Unemployment Insurance Tax Liability Regulations
In Michigan, most for-profit firms are subject to state unemployment insurance fees if they:
employ one or more people in any 20 calendar weeks (Sunday through Saturday) in a calendar year (January 1 through December 31), or pay (or owe payment of) total wages of $1,000 or more in a calendar year, or acquire the organization, trade, or business, or 75% or more of the assets of a company that was already an employer liable for unemployment taxes.
The last circumstance is known as “successorship,” and it is not addressed here. These regulations are comparable to, but not identical to, those that govern liability under the Federal Unemployment Tax Act (FUTA). Different restrictions apply to agricultural (farm) workers, domestic (in-home) workers, and employees of certain (but not all) non-profit organizations, which are not included here.
Wage Structure and Tax Rates
Each employee’s salaries are subject to UI tax up to a certain yearly limit. In Michigan, this amount, known as the taxable wage base, is subject to change each year. It has been either $9,000 or $9,500 since 2012. The balance of the state’s unemployment compensation fund determines which of the latter two sums applies in a particular year.
The UI tax rate for new employers might also alter from year to year. In recent years, it has been 2.7% during the first two years of employment. (New construction employers are subject to a separate, higher rate.) Based on a “experience rating,” established employers are liable to a lower or higher rate than new firms. This includes, among other things, whether your company has ever had workers file claims for state unemployment benefits. The mechanism for calculating an established employer’s UI tax rate in Michigan is quite convoluted, including the addition of a flat rate (typically also 2.7%) to a so-called chargeable benefits component, or CBC.
One piece of good news is that state UI tax payments are often deductible from FUTA taxes.
File UI Tax Reports and Payments on Time
UI tax returns and payments are required in Michigan on the 25th day after the end of each calendar quarter. In other terms, the deadlines are as follows:
For the months of January through March, the deadline is April 25.
July 25 for the months of April to June, October 25 for the months of July to September, and January 25 for the months of October to December.
This timetable differs from that used by most other states and the federal government, which has due dates on the final day of the month rather than the 25th.
You must submit your UI tax reports online beginning in 2015. The UIA will no longer accept paper Form UIA 1028, Employer’s Quarterly Tax/Payroll Report, as it has in the past. You can only file online using the UIA’s Michigan Web Account Manager (MiWAM). To create a MiWAM account, go to the UIA website and choose “Michigan Web Account Manager for Claimants and Employers.”
The MiWAM system enables you to submit reports as well as pay UI taxes. However, when it comes to payments, you have the choice of paying online, by check, or by money order. Include Form UIA 4101, Employer’s Quarterly Tax Payment Coupon, if paying by check or money order. Blank coupons may be downloaded from the UIA website’s Forms Section.
Even if you had no covered employees, paid no salaries during the quarter, and no taxes were payable for the quarter, you must submit quarterly forms. If you fail to submit a quarterly report or file it late, the state will levy a penalty.
Make a Public Notice (Poster)
You must display a notification (poster) about state unemployment claims in a visible location for all workers. The poster gives very basic information on how an employee may petition for unemployment benefits and how they will be paid. From the UIA website’s Forms Section, you may download a notice that satisfies all legal requirements (Form UIA 1710, Notice to Employees).
Employees should not be misclassified as independent contractors.
Employers that hire independent contractors rather than employees are exempt from the UI tax. It is critical, however, that you should not misclassify an employee as an independent contractor. If you misclassify an employee, you may face penalties or fines.
Using Payroll Service Providers
You may decide that it is easier to delegate payroll obligations, including UI taxes, to an outside payroll agency. If this is the case, bear in mind that your company, or even you personally, may be held directly liable for errors made by an outside payroll firm.