Employer's Guide to Unemployment Insurance Tax in in Michigan

If your small business has employees working in Michigan, you must pay Michigan unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Michigan, state UI tax is just one of several taxes that employers must pay.

Different states have different rules and rates for UI taxes. Here are the basic rules for Michigan's UI tax.

Register With the Department of Treasury and Unemployment Insurance Agency

As a Michigan employer, you must establish a Michigan UI tax account with the state's Unemployment Insurance Agency (UIA). You obtain the required UIA Employer Account Number by registering with the Michigan Department of Treasury (DOT) online or on paper.

To register on paper, use Form 518, Registration for Michigan Taxes. For UI tax purposes, you must include Schedule A, Liability Questionnaire, and Schedule B, Successorhip Questionnaire, with your Form 518. You can download a blank form with all necessary schedules and instructions from Business Tax Registration section of the UIA website.

There is no fee to register your business with the DOT and UIA. Download the Michigan Business Taxes Registration Booklet to learn more.

Rules for Unemployment Insurance Tax Liability

In Michigan, most for-profit employers are liable for state UI taxes if they:

• employ one or more persons in any 20 different 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 the payment of unemployment taxes.

The last listed situation is called "successorship" and isn't covered here. These rules are similar to, but not identical to, the rules that apply for liability under the Federal Unemployment Tax Act (FUTA).

Different rules, not covered here, apply to agricultural (farm) workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.

Wage Base and Tax Rates

UI tax is paid on each employee's wages up to a maximum annual amount. That amount, known as the "taxable wage base," is subject to change yearly in Michigan. Since 2012, it has been either $9,000 or $9,500 ($9,500 in 2024). The determination of which of the latter two amounts applies in a given year is based on the balance of the state's unemployment compensation fund.

The UI tax rate for new employers also can change from one year to the next. In recent years, it has been 2.7% for the employer's first two years. (New employers in the construction industry are subject to a different, higher rate.)

Established employers are subject to a lower or higher rate than new employers depending on an "experience rating." This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits. Michigan's formula for computing an established employer's UI tax rate is somewhat complicated and involves adding together a flat rate (often also 2.7%) to a so-called "chargeable benefits component" or CBC.

State UI tax payments generally can be credited against your FUTA taxes.

File Scheduled UI Tax Reports and Payments

In Michigan, UI tax returns and payments are due by the 25th day after the close of each calendar quarter. In other words, the due dates are:

• April 25 for the period January through March
• July 25 for the period April through June
• October 25 for the period July through September, and
• January 25 for the period October through December.

Note that this schedule is different than the one used by most other states and the federal government, which have due dates on the last day of the following month rather than on the 25th day.

As of 2015, you must file your UI tax reports online. Unlike in the past, the UIA will no longer accept paper Form UIA 1028, Employer's Quarterly Tax/Payroll Report. You can file online using the UIA's Michigan Web Account Manager (MiWAM).

The MiWAM system allows you to file reports and make UI tax payments. However, regarding payments, you have the option either to pay electronically or by check or money order. If you pay by check or money order, include Form UIA 4101, Employer's Quarterly Tax Payment Coupon. You can download blank coupons from the Forms Section of the UIA website.

You must file quarterly returns even if you had no covered workers, paid no wages during the quarter, and no taxes are due for the quarter. The state will assess a penalty if you fail to file a quarterly report or file late.

Post a Notice (Poster)

You must post a notice (poster) regarding state unemployment claims in a conspicuous place for all employees. The poster provides basic information about how an employee can file an unemployment claim and how they will receive benefits.

You can download a notice that meets all legal requirements (Form UIA 1710, Notice to Employees) from the Forms Section of the UIA website.

Do Not Misclassify Employees as Independent Contractors

Employers who use independent contractors rather than hiring employees aren't subject to the UI tax. However, it's important that you don't misclassify an employee as an independent contractor.

You could be subject to penalties or fines if you misclassify an employee.

Using Payroll Service Companies

You might decide that it's easiest to hand over responsibility for payroll, including UI taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes an outside payroll company makes.

Additional Information

This article touches on only the basic elements of Michigan UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and UIA websites for the latest information. The UIA also has several helpful publications, including an Employer Handbook, that you can download from the UIA website.

In addition to state UI tax, employers have other responsibilities not covered in this article, such as federal UI tax, state and federal withholding taxes, and required reporting of new hires. Talk to a tax lawyer or employment attorney to learn more.