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Unemployment Benefits In Michigan: Who Pays For It?

There are two basic taxes designed to provide for unemployment benefits in Michigan. Employers are required to pay these taxes to support the federal – state employment security system. The UIA, or the Unemployment Insurance Agency, receive a tax to pay for the state unemployment trust fund from which benefits are paid to the unemployed. This tax ranges from 0·6 to 10·3 percent on the first $9,000 of the wages of each employee according to an experience rating. All state unemployment trust funds are held by the U. S. Treasury in state specific accounts.

Under the Federal Unemployment Tax Act (FUTA) the Internal Revenue Service collects money from the second tax and deposits it with the U. S. Treasury to pay for the administration of the state Employment Services and Unemployment Agencies and to finance the federal share of extended benefits as well as making a loan account available for use when the UI trust funds are insolvent. At present the FUTA tax rate is 6·2 percent on the first $7,000 paid in wages for each employee. Employers ( as long as they have paid their state employment taxes by the due date—January 31) may claim 5·4 % tax credit which makes net tax liability 0·8 %.

The federal state employment security system also covers many non profit organizations as well as governmental entities. Beginning January 1, 1972 employees of these organizations became eligible for unemployment benefits in the same way as other workers. At the same time these organizations became responsible for the payment of these unemployment benefits. In Michigan governmental entities as well as non-profit organizations and Indian tribes or tribal units can choose to repay the unemployment trust fund for the benefits paid to their employees instead of paying the UI payroll tax. Employers who opt for this do not pay the FUTA tax and they don’t contribute toward the administration of the state`s employment security programs. They are called reimbursing employers.

The understanding that benefit liabilities are funded in advance of the payment of the benefits is the basis on which the UI section of the federal –state employment security system is designed to function. For this reason there is a systematic accumulation of benefit reserves in trust funds run by the state while enjoying periods of economic growth to ensure that during periods of economic decline there are enough assets on hand to pay out unemployment benefits.

About $1·4 billion a year is collected in Michigan from employers as unemployment taxes. There are around 213,000 employers who contribute and 5,300 employers who have opted to reimburse the unemployment trust fund. All of these accounts are maintained by the UI` s Tax Office. When the unemployment rate rises, as has been the case in recent years, the state has to resort to the recourse of borrowing federal dollars. Of course this is not the way forward in order to improve the economic climate in Michigan or any other state.

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