The FUTA tax rate is normally 6.2%. If you pay state unemployment taxes, you get a 5.4% FUTA rate reduction credit. Subtracting the 5.4% credit from the 6.2% FUTA base is the 0.8% FUTA tax rate we know and love. When a state has a negative balance in its unemployment tax reserves, it borrows from the federal government. When a loan is outstanding for 2 or more years, the FUTA rate reduction credit is reduced by 0.3% for the first year, and an additional 0.3% for the second year.
Michigan’s rate reduction credit in 2009 was reduced by 0.3% to 5.1%. Thus, our FUTA rate for 2009 is 1.1%. However, an employer that has paid Michigan unemployment taxes for five or more years, and has a positive balance in its unemployment experience account will receive a credit of up to 50% of the extra FUTA paid in 2009. The credit is nonrefundable and can only be used to offset future Michigan unemployment taxes.
The credit is claimed by filing form UIA 1110.
The credit is the LESSER of:
- 50% of the additional FUTA tax paid in 2009
- the employer’s taxable wages for 2009 multiplied by the Nonchargeable Benefits Component (NBC) of the employer’s unemployment tax rate for 2009. The NBC is shown on the Unemployment Tax Rate Determination letter you receive each year (usually in December).
- has applied for the Michigan tax credit
- has paid Michigan unemployment taxes for five years or more
- has a positive reserve ending balance in its unemployment experience account as of June 30 of the previous calendar year
- has filed all quarterly tax reports for the year prior to the credit claim (i.e., 2009 reports must have been filed)
- has paid the additional FUTA taxes for 2009 (the taxes have to be paid by the end of 2010)
- has paid its FUTA taxes prior to applying for the Michigan credit
- has certified the amount of additional 2009 FUTA taxes when it applies for the credit.
Quite a bit of work for a credit which may be in the ballpark of a few hundred dollars.
Fine Print: This posting contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.