March 1, 2021
Michigan 2021 SUI taxable wage base to increase; governor vetoes provision that would have bolstered the UI trust fund balance
Legislation (HB 6136) that would have held the 2021 state unemployment insurance (SUI) taxable wage base at $9,000 failed to pass before the end of the 2019—2020 legislative session. Consequently, the employer SUI taxable wage base will increase to $9,500 for 2021 unless the state legislature reintroduces and enacts similar legislation during the 2021—2022 legislative session. The increase to the 2021 SUI taxable wage base, up from $9,000 in 2020, was confirmed by the Michigan Unemployment Insurance Agency (UIA). (UIA website; Email response to inquiry, Michigan Chamber of Commerce representative.)
As we reported, HB 6136 would have provided a one-year exception to the requirement that the SUI taxable wage base increase to $9,500 because the unemployment insurance (UI) trust fund balance fell below $2.5 billion on June 30, 2020, due to the payment of COVID-19 UI benefits. (EY Tax Alerts 2020-2238, 9-15-2020 and 2020-2141, 8-28-2020; Michigan Chamber of Commerce article, July 2020.)
The UIA is prohibited from charging to an employer's account any UI benefits paid to a claimant who was laid off or placed on a leave of absence because of COVID-19, and instead must charge the benefits to the nonchargeable benefits component (NBC) account. The NBC account is the only one of the three components of an employer's Michigan SUI tax rate that is not reflected in an employer's experience for future rate assignment purposes. (EY Tax Alert 2020-2927, 12-23-2020.)
Michigan Governor Gretchen Whitmer line-item vetoed a provision in recently enacted legislation (SB 604) that would have directed $220 million of CARES Act funds be deposited into the state's UI trust fund to prevent the need to borrow from the federal government to continue to pay UI benefits.
SB 604 continues to allow for the payment of 26 weeks of UI benefits, rather than 20 weeks, to COVID-19 UI benefit claimants through the end of March 2021. (News release, governor's office, 12-29-2020; Michigan chamber of commerce editorial, The Detroit News, 12-30-2020.)
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 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.
Employers enjoyed an SUI tax rate reduction for 2020, thanks to the early payoff of the bonds used by the UIA to repay their federal UI loan balance incurred in the 2008—2009 recession. As a result, the Obligation Assessment (OA) added to employer SUI tax rates since 2012 was eliminated in 2020.
For more information on the Michigan UIA's response to COVID-19, see the UIA's website.
2021 legislation (HB 4047), which passed the state house on February 4, 2021, would require the deposit of $150 million into the state UI trust fund for use in offsetting state fraud and improper payments of UI benefits during the COVID-19 emergency. The bill would also allocate $55 million to provide grants for SUI tax relief to afflicted businesses in the food and entertainment business.
Ernst & Young LLP insights
According to the federal Treasury Direct website, as of February 24, 2021, Michigan has not yet requested the option, if needed, to receive federal UI Title XII advances (federal UI loan).
The Michigan Department of Labor and Economic Opportunity announced that based on current unemployment claims activity and economic conditions, it is highly unlikely the state will need to borrow from the federal government to cover unemployment benefits in 2021. Currently, Michigan has one of the healthiest trust funds in the nation, with more than $500 million available for unemployment benefits and is one of few states that has yet to borrow from the fund.
The Department explains that a key reason for the continued health of the trust fund is its successful Work Share Program which saved the state's UI trust fund more than $80 million and helped inject more than $500 million into the state's economy when including the portion of the benefits that were federally funded. The program has thus far helped 2,700 Michigan businesses and almost 97,000 employees at the peak of enrollment, far outpacing even the combined totals of larger states like New York, Ohio and Texas.
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