If your small business has employees working in Michigan, you’ll need to 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.
As a Michigan employer, you need to 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) either online or on paper. To register online, use Michigan’s Business One Stop website. 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.
Note: To establish your Michigan UI tax account, you’ll need a federal employer identification number (EIN). You can apply for an EIN at IRS.gov. Generally, if you apply online, you will receive your EIN immediately.
In Michigan, most for-profit employers are liable for state UI taxes if they:
The last listed situation is called “successorship” and is not covered here. These rules are similar to, but not identical with, 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.
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 each year in Michigan. Since 2012, it has been either $9,000 or $9,500. 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.
One piece of good news is that state UI tax payments generally can be credited against your FUTA taxes.
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:
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 only by using the UIA’s Michigan Web Account Manager (MiWAM). Register for a MiWAM account by going to the UIA website and clicking on “Michigan Web Account Manager for Claimants and Employers.”
The MiWAM system allows you to both 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.
You are required to post a notice (poster) regarding state unemployment claims in a conspicuous place for all employees. The poster provides very 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.
Employers who use independent contractors rather than hiring employees are not subject to the UI tax. However, it’s important that you do not misclassify an employee as an independent contractor. If you do misclassify an employee, you could be subject to penalties or fines.
You may 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 made by an outside payroll company.
This article touches on only the most 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. You can get more information about other small business tax issues in other articles on Nolo.com.