Recently, several MITA members received letters from the MI Unemployment Insurance Agency notifying them that a “solvency tax” would be added to their 2009 unemployment tax rate due to a negative balance in the state’s Unemployment Trust Fund.
Employers, who have paid into the Trust Fund less than the Unemployment Insurance Agency has paid out to their former employees, were likely one of over 40,000 Michigan businesses that received this letter. In that letter companies were notified of their corporate negative balance to the Trust Fund and were given the option to pay that negative balance amount or a solvency tax beginning in the 2009 tax year.
Essentially, the Michigan Employment Security Act requires a solvency tax to be imposed if, on the preceding June 30th, the balance in the Trust Fund is less than the total amount of un-repaid federal loans. On June 30, 2008, the Trust Fund had $177 million in unpaid federal loans.
A disproportionate amount of increased unemployment cost will fall on seasonal construction companies because of their heavy use of the Trust Fund.
A second letter, with your new unemployment tax rate, will be mailed in early January.
The solvency tax is in addition to an employer’s calculated tax rate and will be displayed as a separate line item on Form UIA 1771, Tax Rate Determination for Calendar Year 2009 (if you are a negative balance employer).
Currently, the maximum unemployment tax rate is 10.3%, which many contractors already pay. Based on the maximum solvency formula, the new maximum unemployment tax rate as of January 2009 will be 11.05%. Thus, at the end of the year an employer will have paid an additional $67.50 per employee, based on the annual taxable wage base per employee of $9,000. The tax rate will be different for companies not paying the maximum solvency amount.
This is the first addition of a solvency tax here in Michigan since 1982. Five other states have taken similar measures to keep their trust funds solvent. It is unclear if the solvency tax will be removed after one year or continued in the future.
Stay tuned for more details from MITA.
