Labor and Economic Opportunity
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.
There are three common ways, along with many variations, that are most often used to manipulate the tax rate. They are:
There are several ways in which SUTA Dumping harms employers and the state’s UI trust fund.
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.
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 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. Furthermore, a 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.
If you have or think you have received tax advice that may raise a SUTA concern, or if you would like Unemployment Insurance (UI) to review your account, please call the agency’s Office of Employer Ombudsman (OEO) at 1-855-484-2636. If you voluntarily request an audit determination, any penalties you may be assessed for SUTA Dumping could be substantially reduced.
Many businesses become involved with SUTA Dumping because of a suggestion or recommendation from a consultant or accountant. Such tax advice is usually disguised with terms like “tax management” or “tax avoidance.”
To learn more about SUTA Dumping, or if you suspect another employer is engaging in SUTA Dumping, visit UIA’s website at www.michigan.gov/uia, or call our Office of Employer Ombudsman (OEO) Unit at 1-855-484-2636.