September 15, 2020
Michigan pending legislation would hold the SUI taxable wage base at $9,000 for calendar year 2021
Recently introduced HB 6136 would, if enacted, provide that the Michigan state unemployment insurance (SUI) taxable wage base would remain at $9,000 for calendar year 2021, rather than increase to $9,500 due to a decrease in the state's UI trust fund balance caused by COVID-19.
As we reported, under current conditions the SUI taxable wage base is expected to increase from the $9,000 that has been in effect for the past several years to the $9,500, which is currently only assigned to delinquent employers. Michigan's UI trust fund balance fell below $2.5 billion on June 30, 2020, the balance required for the $9,000 wage base to be in effect. (Tax Alert 2020-2141; Michigan Chamber of Commerce article, July 2020.)
Under HB 6136, the imposition of the $9,500 taxable wage base for 2021 would not apply due to Michigan Governor Gretchen Whitmer's COVID-19 emergency declaration (originally by EO 2020-4 and extended numerous times, most recently to October 1, 2020 by EO 2020-177) and the subsequent business shutdowns.
The bill would provide a one-year exception to the requirement that the taxable wage base be $9,500 because the UI trust fund balance fell below $2.5 billion on June 30, 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 Michigan Unemployment Insurance Agency (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.)
As we reported, employers are enjoying a SUI tax rate reduction for 2020 thanks to the early payoff of the bonds used by the UIA to repay their federal UI loan taken out during the previous economic downturn. As a result, the Obligation Assessment (OA) added to employer SUI tax rates since 2012 was eliminated for 2020.(Tax Alert 2020-0131.)
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 net federal unemployment insurance (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 per rate per employee due to the elimination of the OA.
According to the federal Treasury Direct website, as of September 9, 2020, Michigan has not yet requested the option, if needed, to receive federal unemployment insurance (UI) Title XII advances (federal UI loan).
For more information on the Michigan UIA's response to COVID-19, see the agency's website.
EY Payroll News Flash