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January 17, 2020
2020-0131

Michigan employers to enjoy lower SUI tax payments due to early bond payoff; 2020 base tax rates unchanged

Michigan Governor Gretchen Whitmer announced that Michigan employers will see a state unemployment insurance (SUI) tax rate reduction for 2020 thanks to the early payoff of the bonds used by the Michigan Unemployment Insurance Agency (UIA) to repay their federal SUI loan. As a result, the Obligation Assessment (OA) added to employer SUI tax rates since 2012 is eliminated.

The OA was used from 2012–2019 to repay the $3.2 billion in bonds issued to retire the federal UI loan in December 2011 and return the FUTA rate to 0.6%. It was originally expected that it would take up to 10 years to repay the bonds. A chart is available from the UIA that shows the savings rate per employee.

"Our team identified a creative solution to eliminate the Obligation Assessment ahead of schedule without jeopardizing responsible management of the Unemployment Trust Fund," said UIA Director Steve Gray. "Thanks to their proactive actions, employers will see a reduction of $65 - $217 per employee in 2020."

Mailing of the 2020 rate notices; chance to lower your experience rate within 30 days of the mailing date

The UIA mailed the 2020 SUI tax rate notices to employers on December 28, 2019. Fully merit-rated employers may make a voluntary contribution within 30 days of the mailing date on the rate notice to reduce the Account Building Component (ABC) portion of their 2020 tax rate. Once made, a voluntary contribution is irrevocable. If paid, it must be received by the UIA within 30 days of the mailing of the annual tax rate notice.

2020 range of basic SUI rates to remain the same

According to an UIA representative, the basic 2020 SUI tax rates continue to range from 0.06% to 10.3%. (Telephone conversation.)

2020 taxable wage base expected to stay $9,000, but unconfirmed until February 2020

Legislation enacted in late 2015 (SB 500) revised Michigan's UI law by setting the SUI taxable wage base to $9,000 for any calendar year that the SUI trust fund balance exceeds $2.5 billion as of the previous June 30 and the UIA projects at the beginning of the next year that the trust fund balance will continue to exceed $2.5 billion for the first and second quarters. (EY Payroll Newsflash Vol. 17, #010, 1-12-2016.)

The 2020 taxable wage base is expected to remain at $9,000 because the state's SUI trust fund balance as of June 30, 2019, was $4,626,453,952. The UIA will need to issue a projection in February 2020 confirming that the trust fund balance will continue to exceed $2.5 billion through the second quarter 2020.

Higher SUI wage base applies to delinquent employers

The law provides that employers delinquent in the payment of unemployment contributions, penalties, or interest of $25 or more as of February 15 of the tax year must pay SUI taxes on a higher $9,500 taxable wage base. These employers are usually given the opportunity to resolve any delinquency, so they are able to use the $9,000 taxable wage base. Failure to resolve the delinquency will result in the use of the $9,500 taxable wage base for the calendar year.

Calculation of the SUI tax rate

Similar to Pennsylvania, the Michigan SUI tax rate calculation is a benefit-ratio/reserve-ratio combination, considered to be one of the most highly "experience rated" systems in the country. For experience-rated employers (beginning in the third year of liability), the SUI tax rate is made up of three components which are computed separately and then added together to figure the yearly tax rate. The three components are the Chargeable Benefits Component (CBC); the Account Building Component (ABC); and the Nonchargeable Benefits Component (NBC).

The CBC and the ABC are affected by the employer's payroll and the unemployment benefit charges to their account. Since these components reflect each company's experience, they are known as the experience components. The NBC is generally a flat 1.0% for experience-rated employers. However, for employers with no, or very few, benefit charges the NBC can be as low as 0.06%.

New employers pay at 2.7% + 1/3 of the employer's calculated CBC for the first year of liability and 2.7% + 2/3 of the employer's CBC for the second year of liability.

For more information on Michigan SUI taxes, see the Michigan Employer's Handbook or call the UIA's Office of Employer Ombudsman (OEO) at +1 855 484 2636.

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Debera Salam (debera.salam@ey.com)
   • Kristie Lowery (kristie.lowery@ey.com)

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