What the law says: This issue is covered in Sections 15(a), 15(h), and 54(c) of the Michigan Employment Security Act. The law says that the following penalties and interest apply for late filings of tax returns or late tax payments:

Interest for overdue tax payment
Interest accrues on unpaid taxes at the rate of 1.0% a month, computed daily, but not more than 50% of tax owed for the quarter. This means that for every day during a month when there is a tax payment owing, additional interest accrues. A new (successor) business owner can inherit the interest charges due from the previous (predecessor) business owner.

Penalty for failing to file a tax report
In addition to the interest for a late tax payment, a separate penalty applies for failure to file a quarterly tax report (Form UC 1020). The penalty is 10% of the contributions due on the un-filed report. (The penalty is applied once the report is filed and the amount of contributions due is determined. However, the UIA may also make an estimate of the amount of taxes due, and assess a penalty, and interest, accordingly. See the Factsheet on “Willful Neglect.”) The minimum penalty is $5.00 and the maximum is $25.00 for each tax report the employer failed to file.

Negligence Penalty
If part of a missing tax payment is due to an employer’s negligence or disregard of the UIA's rules, but is not due to fraud, the employer will be assessed a penalty of 5% of the total amount owed, in addition to any other interest or penalties already owed.

Fraud Penalty
If it is determined that some or all of a missing payment is due to an employer’s fraudulent attempt to avoid tax payments, then the penalty will vary, depending on the amount of tax withheld. The penalty can be as high as the amount fraudulently withheld plus imprisonment up to 5 years, or community service of up to 10,400 hours, or a combination of both.

Examples: An employer hires a new bookkeeper in February of 1989, and the bookkeeper does not file a UIA report for the first calendar quarter of 1989 until August 8, 1989. The bookkeeper filed reports for the second and third calendar quarters on time. However, he does not make a tax payment on any of the calendar quarters until November 1, 1989. That payment is for the first, second, and third quarters.

Because the tax report for the first quarter was late, a 10% penalty applies, with a maximum of $25.00. Because the tax payments for the first and second quarters were late, interest accrues for overdue payments from each of those quarters at the rate of 1.0% per month on the entire tax amount owed.

The payment made on November 1 will be applied in the following order: (1) penalty for the late tax report for the first quarter; (2) interest for the first quarter; (3) principal for the first quarter (solvency tax, nonchargeable benefits, remaining tax); (4) interest for the second quarter; (5) principal for the second quarter (solvency tax, non-chargeable benefits, remaining tax); (6) principal for the third quarter (solvency tax, nonchargeable benefits, remaining tax).

Proof at the Hearing: The UIA has the burden of proving the amount of the interest and penalties. The employer can bring business records to prove the UIA was wrong. The employer’s evidence could include, for example, cancelled checks to prove that UIA received a payment but failed to credit the employer, or received the payment on time but recorded it as being received late. The employer could also produce a certified mail receipt showing that the item was mailed.

For Further Help: The Unemployment Insurance Agency (UIA) Advocacy Program can provide assistance to employers in preparing for Administrative Law Judge and Board of Review hearings on this issue. Call 1-800-638-3994.

The information on this sheet is intended to provide a general understanding of the subject matter. It does not have the force of law or regulation.