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New Tax & Insurance Requirements For Michigan Businesses

The economic climate in Michigan is in flux and in some terms, on the rise. As of the end of 2016, Forbes rated Michigan as #28 among the best states for business, an increase from 2009 when it ranked at #49. With regards to economic climate, Michigan sits at #15.

Michigan’s current governor (Richard D. Snyder) has tried to make the state a more business-friendly state over the past six years by repealing and rolling back some taxes, resulting in benefits to employers.

Following is a list of taxes and insurance that may be relevant to the operation of a business or corporation in Michigan. Note that this is not an exhaustive list; depending on the nature of your business other rules may apply.

Income Tax Withholding

Employers in Michigan who must withhold federal income tax from employee wages under the Internal Revenue Code must also withhold Michigan income tax—which is currently 4.25 percent, after the deduction of personal and dependency exemption allowances. In addition, employers in some local jurisdictions must withhold local income tax.

Corporate Income Tax

C corporations and corporations who are taxed as such federally must pay a 6-percent Michigan Corporate Income Tax (CIT)—which replaced the Michigan Business Tax in 2012 for the majority of taxpayers.

If your allocated gross receipts are less than $350,000 and/or your annual tax liability is less than or equal to $100, you do not have to pay or file the CIT. Financial institutions and insurance companies are excluded from the gross receipts threshold. Insurance companies and financial institutions pay alternative taxes, instead of CIT.

Insurance companies pay a premium tax of 1.25 percent and financial institutions pay a franchise tax of .29 percent. For more information on these taxes, visit the state’s Department of Treasury website.

Workers’ Compensation

Worker’s compensation, as required in Michigan, provides wage replacement, medical, and rehabilitation benefits to individuals who are injured while at work. At the same time, it protects employers by limiting their liability.

Most public and private employers in Michigan are covered by workers’ compensation. Generally, private employers are subject to the state’s Workers’ Disability Compensation Act if:

  • They have three or more employees simultaneously
  • One or more employees earn 35 hours or more a week for 13 or more weeks

Note that a few classes of workers are covered by federal laws but not by the Workers’ Disability Compensation Act of Michigan, including postal workers, VA hospital staff, and members of the U.S. armed forces.

Essentially, most workers are covered by the state’s workers’ compensation laws, which require that employers provide some way of assuring that they can pay benefits to workers injured on the job. Most employers purchase a policy from private insurance companies to meet this requirement.

More information on workers’ compensation laws in Michigan can be found on The Michigan Department of Licensing and Regulatory Affairs website.

Unemployment Insurance

Federal unemployment insurance and Michigan unemployment insurance must be paid entirely by the employer rather than by the employee.

The federal unemployment tax (FUTA) rate, after full credit, is 0.6 percent of the first $7,000 paid to each employee covered under the federal law.

Regarding Michigan’s state unemployment tax (SUTA), new employers in Michigan are charged a tax rate of 2.7 percent for the first two years, except for new construction employers who must pay an “average construction contractor rate” for the initial two years. For 2017, Michigan unemployment tax is calculated on only the first $9,500 of each covered employee’s taxable wages.

Ultimately, your Michigan unemployment tax rate depends on your experience rating. For example, the fewer benefits charged to your account, the lower your rate. The size of your payroll is also considered: Relatively low numbers of workers mean a lower than average rate.

Social Security and Medicare Taxes

Employers in Michigan must withhold Social Security and Medicare taxes from their employees’ taxable wages plus pay their own share of those taxes.

For 2017, employers and employees pay Social Security tax at 6.2 percent of taxable wages—up to the annual wage base of $127,200. The Medicare tax rate for employers and employees is 1.45 percent of all taxable wages. However, some employee wages are subject to an additional Medicare tax of 0.9 percent.

Keep in mind that relevant businesses in Michigan must not only pay taxes and insurance but also file reports with the administering federal, state and local agency. To avoid penalties and interest stemming from noncompliance, it’s important to stay abreast of and follow the rules put forth by the respective agency.

 

Date

June 20, 2017

Author

AXIOS HR

Category

Article Business Executives Under 50 Employees Compliance

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