What is SUTA Dumping?

What is SUTA Dumping?

SUTA (state unemployment tax act) Dumping is a tax evasion practice involving the manipulation of an employer’s unemployment insurance (UI) tax rate to achieve a lower rate, and thereby pay less UI taxes.  Typically, SUTA Dumping occurs when a business transfers payroll out of an existing company or organization to a new or different organization solely or primarily to reduce UI taxes.

For those who suspect SUTA Dumping 

Employers, who have or think they have been taken in by someone's tax advice, should consider calling the UIA's Employer Customer Relations Hotline at 1-800-638-3994.  Those who voluntarily request an audit determination will receive a substantial reduction in any penalties that may be assessed for SUTA dumping.

What is the harm in SUTA Dumping?

There are several ways in which SUTA Dumping harms employers and the state’s UI trust fund.

  • SUTA Dumping goes against the fundamental tenet of an experience-rated tax system that is widely supported by the employer community.  The UI tax rate is based on an employer’s history of benefit charges.  With SUTA Dumping, an employer with a high UI tax rate attempts to hide behind a different company with a lower tax rate and dump their UI costs on all other employers.
  • SUTA Dumping creates a competitive cost advantage for employers practicing UI tax evasion.
  • SUTA Dumping reduces money in Michigan’s UI trust fund, causing an increase in unemployment tax rates for all employers. 
  • SUTA Dumping reduces funds available to pay unemployment benefits to unemployed workers.
  • SUTA Dumping puts those employers at a disadvantage who try to manage their work and maintain steady employment for their employees as SUTA Dumping allows charges that are never paid for by the business.
  • SUTA Dumping rewards employers for dumping their UI responsibility for past benefit charges on the rest of employers.

Although only a small percentage of employers are involved in SUTA Dumping, all employers are impacted because the “escaped responsibility for benefits paid” ends up with the rest of Michigan’s employers.

What is the penalty for engaging in SUTA Dumping?

If you participate in a SUTA Dumping practice and are discovered, you run the risk of paying a penalty that would amount to four times any savings you would have received by manipulating your tax rate, if it is found to be intentional. Your UI tax rate would also be increased to the maximum tax rate (but not less than a 2% increase), for the year in which we determined that you engaged in intentional SUTA Dumping, and for the next three years.  A new civil penalty of up to $5,000 will apply if a person simply advises another business to participate in SUTA Dumping and is not an employer.

 

Questions? 

Our Office of Employer Ombudsman is also available to answer your questions about SUTA dumping and to provide you with more information. Contact oeo@michigan.gov or call 1-855-4UIAOEO (1-855-484-2636).

Learn More About SUTA Dumping: 


SUTA Dumping Legislation: