Contesting Retroactive Unemployment Taxes

man with stuff boxed up
October 12, 2017

The State of Michigan Unemployment Agency (MUA) has implemented numerous changes in recent years to its tax rate determination process. One of those changes could cause employers to pay additional taxes and interest on a retroactive basis. Employers unaware of these changes may suddenly find themselves having to pay back unemployment taxes and interest and penalty, even though they paid all the original taxes correctly and timely.

You can and should contest these re-determined rates. Allow me to give you an example.

An employer received an unemployment tax rate in 2014 of 5.0%. They paid the taxes owed timely and correctly. However, in 2017 the MUA issued a redetermination on an unemployment claim originally filed in 2014. The claim was originally denied, but in 2017 the agency re-determined the claim to be allowed.  

In 2017 the agency notifies the employer that unemployment benefits are being charged to their account for a claim certified in 2014. Historically, those charges were added to the computation of future tax rates. However, the agency now uses those charges to recalculate prior tax rates on a retroactive basis. 

As a result, the MUA includes those 2014 benefits to recalculate prior tax rates for 2015, 2016 and 2017. If the benefits for 2014 that were not paid until 2017 would cause your unemployment rate to increase for prior years, the MUA will issue a re-determination of prior tax rates for 2015, 2016 and 2017. The MUA will issue an assessment for unpaid taxes and retroactively include interest for non-payment of those taxes in 2015, 2016 and 2017. 

Employers unexpectedly have an increased unemployment tax bill for prior years, despite paying all taxes owed timely.

Employers have a right to contest any assessments or re-determined tax rates. If a re-determined tax rate has been issued and it is over one year since the original determination, then employers can and should contest that rate to an unemployment hearing to have those taxes and interest charges removed. State law does not allow the Michigan Unemployment Agency to re-determine a tax rate after one year has passed and assess retroactive taxes and interest. 

Even if the agency does issue a re-determined tax rate within one year, the interest the agency issues is remains contestable, but you must do so within 30 days of the issuance of the assessment.

Don’t just assume that an unemployment tax rate that has been re-determined can’t be challenged, it can and should be contested to save your company money.

Submitted by Brian Gmerick of F.A.R. Management, Inc.