The Michigan Unemployment Tax applies to the first $9,500 of each employee’s wages during each year. Once an employee reaches $9,500 of wages in a year, the employer does not have to pay unemployment tax on that employee’s excess wages for the rest of the year. Businesses with low employee turnover tend to have larger unemployment tax liabilities in the first two quarters. This is because employees (especially full-time employees) will hit the $9,500 wage limit fairly early in the year. Employers with higher turnover have employees starting later in the year and will thus have taxable wages in later quarters.
Example: ABC Corp has ten full time employees who earn $10,000 per quarter. ABC Corp has a 5% unemployment tax rate. ABC Corp’s total wages for the first quarter are $100,000. Taxable wages for the first quarter are $95,000 (the first $9,500 of each employee’s wages). ABC Corp’s unemployment tax due is $4,750. As long as ABC Corp does not hire additional employees during the remainder of the year, ABC Corp will not have an unemployment tax due for the remaining three quarters of the year because each employee reached the $9,500 limit in the first quarter.
Beginning in 2013, certain employers will be able to spread their first quarter Michigan Unemployment tax liability over four equal quarterly payments. For example, in the above fact scenario, ABC Corp has to pay $4,750 by April 25. If ABC Corp qualifies under this provision, it can pay the $4,750 in four equal payments of $1,187.50 with its four Michigan unemployment tax returns for the year.
- A business have 25 or fewer employees on January 12th of the prior year AND
- 50% or more of the business’ total previous year’s tax were payable with the first quarter report.
If the business qualifies, it can make an election on its first quarter report and pay the first quarter tax over four quarters. Beginning in the second quarter, the total amount due for each quarter will be the unemployment tax for payroll in that quarter plus the carryover of the first quarter’s tax.
Example: It is 2013. XYZ Corp had 20 employees as of January 12, 2012. Its unemployment tax liability in the first quarter of 2012 was $5,000 and its total tax liability for the year was $8,000. Since XYZ Corp had 25 or fewer employees as of January 12 of the prior year and 50% or more of its prior year unemployment tax was payable in the first quarter, it meets the requirements to spread its 2013 first quarter liability over four quarters.
Continuing on with the example—If XYZ Corp has $6,000 of tax due in the first quarter, $2,000 in the second quarter, $1,000 in the third quarter, and no tax liability in the fourth quarter, its 2013 Michigan unemployment taxes due will be:
1st quarter: $1,500 (one quarter of $6,000)
2nd quarter: $3,500 (one quarter of $6,000 plus 2nd quarter liability of $2,000)
3rd quarter: $2,500 (one quarter of $6,000 plus 3rd quarter liability of $1,000)
4th quarter $1,500 (one quarter of $6,000 plus 4th quarter liability of $0)
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Buzzkill Disclaimer: This post 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.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230