Contributions or Reimbursements

The UIA keeps an "account" for each employer that pays Michigan unemployment taxes. The account keeps track of taxes paid and benefits charged, but it is a bookkeeping account only, and does not contain actual dollars. In most cases, when a worker becomes unemployed from the employer and collects unemployment benefits, a charge is made to the employer's account. When the employer pays taxes, the account is credited.
 

There are two methods for taxing employers for unemployment insurance. Private, for-profit employers, which includes most employers, are called contributing employers. Each calendar quarter, a contributing employer files a UIA 1028 with the UIA, called a Employer's Quarterly Wage/Tax Report. Employers use the report to compute and pay their unemployment insurance tax. The tax is based on a formula that uses the employer's past experience with the unemployment of its workers, and the size of its payroll as a measure of its potential risk of unemployment.

The second method of paying for unemployment insurance is available only to units of government and to non-profit organizations. Generally, a non-profit organization is one whose purpose is either educational, religious, cultural, or scientific (as defined in Section 501(c)(3) of the Internal Revenue Code), and is exempt from federal income taxes under Section 501(a) of that Code. This second method is called the reimbursing method and the employers who use it are reimbursing employers.

A non-profit organization can file a written request with the UIA to become a reimbursing employer. A governmental unit is automatically a reimbursing employer, unless it requests, in writing, to be a contributing employer. A non-profit organization wishing to switch from the contributing to the reimbursing method must notify UIA within 30 days of being found to be a liable employer, or not less than 30 days before the beginning of the calendar year in which the change will be effective.

A section was added to the Michigan Employment Security (MES) Act in 2002 making Indian tribes and tribal units reimbursing employers unless they request to be contributing employers.

A reimbursing employer does not pay quarterly taxes to the UIA . But if unemployment benefits are paid to former employees, the reimbursing employer must repay UIA , dollar-for-dollar, for unemployment benefits paid out.

Reimbursing employers on or after December 21, 1989 (Nonprofits, Indian Tribes, or Tribal Units), if gross annual payroll/wages are equal to or exceed $100,000 in a calendar year (7/1 through 6/30) they are subject to a 4 percent security in the form of surety bond or letter of credit (gross annual payroll x 4%).