Trust Fund Division C U S T O M E R D R I V E N. B U S I N E S S M I - PDF document

7/28/2014 UI Tax Information & Updates Trust Fund Division C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 1 How is My Tax Rate Calculated? C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 2 Experience-rated tax system uses an employer’s: • Past unemployment benefit claims • Payroll Size • Years of Experience To determine an employer’s annual tax rate. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 3 1

7/28/2014 Factors that will cause the tax rate to increase: • Benefits paid • Unpaid/underpaid taxes • Increasing payroll C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 4 Tax Rate Components Employer Tax rates are calculated by using the following three components: • Chargeable Benefits Component (CBC) • Account Building Component (ABC) • Non-Chargeable Benefits Component (NBC) C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 5 Experience Components CBC and ABC are affected by: • employer’s payroll • unemployment benefit charges • tax payments received Since these components reflect each company’s own experience, they are known as the experience components. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 6 2

7/28/2014 Chargeable Benefits Component • This component takes into consideration the amount of unemployment benefits charged to an employer's account over a 36-month (3-year) period, ending the previous June 30. 36 months of benefits paid CBC = 36 months of taxable payroll The result is rounded to the next higher 0.1% C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 7 Chargeable Benefits Component • Rounding: .0601 = .0601 = .0610 = 6.1% .0600 = 6.0 C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 8 Account Building Component • Account Building Component (ABC) compares balance in an employer’s UIA employer account (actual reserve) with a calculated optimal balance for the employer (required reserve). • The calculation uses each employer’s total payroll for the 12-month period ending the previous June 30 th C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 9 3

7/28/2014 Account Building Component [(Required Reserve) – (Actual Reserve)] x 0.5 [(Required Reserve) – (Actual Reserve)] X 0.5 12 months of total payroll Required Reserve = Employers total (gross) payroll for the 12 months ending the previous June 30 th multiplied by 3.75% Actual Reserve = All monies paid in UI taxes since the business began, minus all benefit charges that have been charged since the business began. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 10 Non-chargeable Benefits Component • Does not entirely reflect an employer’s own experience. • Generally a flat 1.0% for all fully- experienced employers. • The NBC can range from 0.5% to as low as 0.06%. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 11 ABC Computation Period Quarters used in the computation for 2015 tax rate: 9/30/2013; 12/31/2013; 3/31/2014; 6/30/2014 Quarters used in the computation for 2014 tax rate: 9/30/2012; 12/31/2012; 3/31/2013; 6/30/2013 Benefits charged today affect future tax rates! C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 12 4

7/28/2014 Effects of Missing Tax Reports • Missing tax reports (not filed) for the computation period - computed tax rate plus a 3.0% non-reporting penalty • No required tax reports filed - rate set at the highest rate applicable for number of years in business, plus 3.0% non-reporting penalty • If the missing reports are filed within 30 days of the tax rate determination, the non-reporting penalty is removed. • Beyond the 30 days but up to one year, the non- reporting penalty can be reduced to 2.0%. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 13 Tax Rates for Newly Liable Employers Before 2012 Legislation • Year 1 & 2 - 2.7 % • Year 3 - 1.8% + 1/3 CBC • Year 4 - 1.0% + 2/3 CBC  Year 5 - CBC + ABC + NBC 60 months = Fully experienced C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. Tax Rates for Newly Liable Employers Rate Year 2012 • Year 1 - 2.7% • Year 2 - 2.7% + 1/3 CBC • Year 3 - 2.7% + 2/3 CBC  Year 4 - CBC + ABC+ NBC 48 months = fully experienced C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 15 5

7/28/2014 Tax Rates for Newly Liable Employers Rate Year 2013 and After • Year 1 - 2.7% + 1/3 CBC • Year 2 -2.7% + 2/3 CBC  Year 3 - CBC + ABC+ NBC (36 months = fully experienced) C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 16 Form UIA 1771 C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 17 Acquisition of a Business • If a new or existing business acquires the organization, trade, business or 75% or more of the assets of an existing business, there is a mandatory transfer of unemployment experience account of the predecessor employer. This is termed “successorship.” • If the taxable payroll attributable to the transferred portion of the business is less than 100%, then the transfer of experience is termed a partial transfer. For additional information, please refer to Section 22(a) of the MES Act. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 18 6

7/28/2014 Acquisition of Business with Same Controlling Interest If an employer transfers its trade or business, in full or in part, to another employer and there is common ownership, management or control of the two employers at the time of the transfer, there is a mandatory transfer of unemployment experience. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 19 Contact Information Status Liability, Transfer of Business Phone: 313-456-2080 FAX: 313-456-2131 Email: EmployerLiability@michigan.gov Tax Maintenance Tax rates, Missing Tax Reports Phone: 313-456-2010 FAX: 313-456-2131 Email: TaxSupport@michigan.gov C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 20 Bonding Obligation Assessment Public Acts 267 and 268, Dec 19, 2011 C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 21 7

7/28/2014 Bonding/Obligation Assessment • In 2011, the State of Michigan issued bonds to repay federal loans for unemployment benefits and restore solvency to the Unemployment Trust Fund. These bonds will be repaid through an Obligation Assessment (OA) issued to employers. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 22 Facts about the OA • Assessed on all contributing employers until the bonds are repaid. • Bonds are scheduled to take ten years to repay • OA portion of the rate will be determined yearly and included on the annual Tax Rate Determination • OA cannot be protested C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 23 OAR (OA Ratio) Principal, interest, and administrative expenses due on 2013 bonds Anticipated regular UI revenue from contributing employers due in 2014 OA ratio for 2014 = .153985 C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 24 8

7/28/2014 Formula for OA (2014 tax rate x OA ratio) + (base assessment / taxable wage base) OA Ratio (2014) = 0.153985 2014 Base Assessment = $63 per employee Taxable Wage Base = $9,500 (10.3% X 0.153985) + ($63 ÷ $9,500) ( 0.1030 X 0.153985) + .006631 .015860 + .006631= 0.022491 = 2.25% (rounded to next higher tenth) This amount is added to the computed tax rate. C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 25 Obligation Assessment C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 26 Tax Rates w/Obligation Assessment Rate Year 2014 • Year 1 - 2.7% + 1/3 CBC + OA • Year 2 -2.7% + 2/3 CBC + OA • Year 3 -CBC + ABC + NBC + OA (36 months = fully experienced) C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 27 9

7/28/2014 2014 OA Rate Calculator www.michigan.gov/uia Find more details in Fact Sheet 146 C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 28 Form UIA 1028 Employer’s Quarterly Wage/Tax Report C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 29 UIA 1028 The re-designed form replaced six UIA forms: • 1017 - Quarterly Wage Detail Report • 1019 - Amended Wage Detail Report • 1020 - Employer’s Quarterly Tax Report • 1020-R-Reimbursing Employer’s Quarterly Payroll Report • 1021 - Amended Quarterly Tax Report • 1021-R - Amended Reimbursing Employer’s Quarterly Payroll Report C U S T O M E R D R I V E N. B U S I N E S S M I N D E D. 30 10