UIA PAYROLL TAX RATES DECREASING FOR 2020
On December 30, 2019 the Michigan Unemployment Insurance Agency (UIA) issued notices to Michigan employers indicating their 2020 calendar year tax rates. These notices are called “Tax Rate Determination for Calendar Year 2020” (UIA Form 1771). The unemployment payroll tax is calculated on the first $9,000 of wages earned by each employee and is paid on a quarterly basis after submitting the UIA form 1028, Employer’s Quarterly Wage/Tax Report.
Upon reviewing the notice employers may first notice that the total 2020 rate is lower than previous years. This is because employers are not being assessed the “Obligation Assessment” for the first time since 2014. The Obligation Assessment was a tax temporarily assessed on employers to pay for $3.2 billion in Michigan Finance Authority bonds issued by the State of Michigan. These bonds were issued in 2012 to steady increasing unemployment rates when they were raised significantly after the recession. During calendar year 2019 the bonds were fully repaid which completed the Obligation Assessment and reduced the 2020 employer payroll tax. While the first item employers may review on the notice is the final tax rate calculation, it is also important to review and be aware of the full calculation. Below is a breakdown of the three components of the calculation:
- NonChargeable Benefits Account Component — This portion can range from 0.6% to 1.0% depending on any unemployment claims and is the only component that does not reflect the employer’s situation or experiences.
- Chargeable Benefits Component — This component considers an employer’s history of benefit and looks back five years ending the previous June 30th. Low payable claims result in a lower tax rate for this component while higher claims result in a higher rate.
- Account Building Component — This component aims to build a reserve for potential unemployment claims by comparing an employer’s actual reserve with the required reserve. The calculation reviews the payroll over the last twelve months ending the previous June 30th.
After carefully reviewing UIA rate notices employers should file any disputes or appeals of the calculation by January 29, 2020, or by the 30th day from the mail date listed on the determination. In addition, the person responsible for monitoring and paying unemployment taxes must update the tax rate to be assessed on 2020 wages. If the tax rate was not updated for any wages thus far, be sure to calculate the total unemployment liability as of 3/31/20 for the 1st Quarter UIA payroll tax return and subsequent payment due 4/25/20.
If you have any questions on your UIA notice or other payroll issues, give us a call (517) 323.7500.
Sources: Michigan.gov/uia and Michigan MGMA