What Employers Need to Know About 2011 Unemployment Insurance Tax Increases

January 2, 2011

Michigan job providers will see increases in state and federal unemployment insurance tax in 2011 to repay the more than $3.8 billion the state borrowed from the federal government to pay jobless benefits as Michigan’s unemployment soared during the recent economic downturn.  These tax increases will trigger automatically under state and federal law, meaning employers will pay $240 million in additional UI taxes in 2011. 

The Michigan Chamber continues to advocate for tax relief for Michigan job providers at both the state and federal level. In Washington D.C., we will continue to urge lawmakers to provide UI tax relief by (1) waiving UI loan interest on the state’s outstanding loan balance, and (2) waive Federal Unemployment Tax Act (FUTA) penalties on employers in states that are borrowing.  

Without federal relief, current federal and state law require the imposition of two additional taxes when there is an outstanding loan balance:

1. FUTA Increase. Federal law triggers an increase in the Federal Unemployment Tax Act (FUTA) rate to raise funds to retire the principal of the debt. Click here for further information from the Unemployement Insurance Agency (UIA).

2. Solvency Tax. State law imposes a Solvency Tax to raise revenue to assist in paying the interest costs on the debt. The federal stimulus bill (ARRA) waived interest payments and the accrual of interest on advances to the State Unemployment Trust Fund through December, 31, 2010. The Legislature subsequently moved to “de-trigger” the $67.50 per employee “solvency tax” on negative balance employers that was set to take effect in January of 2009. Unless Congress acts to further extend the interest waiver period, the solvency tax on negative-balance employers will automatically re-trigger when the interest waiver period expires on December 31, 2010. These tax revenues will need to be remitted to the federal government in September of 2011. Click here for further information from the UIA.

At the state level, we will continue to advocate for cost-saving reforms and solutions to eliminate the debt incurred, putting the state’s UI trust fund on the road to long-term solvency. 

The Michigan Chamber is encouraging Congressional action to further waive or delay the interest and principal payments that would otherwise be due in 2011 because, if these tax increases are allowed to go into effect, it will only add to the hardship Michigan job providers are facing and further slow economic recovery. It may also provide an incentive for employers to seek to relocate their businesses to states where these additional taxes are not in effect. 

Further information can be found here. If you would like additional information on this issue, please contact Wendy Block at wblock@michamber.com or 517/371-7678.