Michigan Businesses to Receive Tax Reduction Ahead of Schedule

Statement

In 2020, Michigan employers will no longer see an Obligation Assessment on their tax rate notice thanks to the early payoff of Michigan Finance Authority bonds by the Unemployment Insurance Agency (UIA). The UIA with its partners, sought to pay off the Obligation Assessment in 2019, allowing $55 million to remain with employers as opposed to collecting the additional tax through May of 2020.

"This is good news for Michigan businesses, their hardworking employees, and our economy as a whole," said Governor Whitmer. "It will give employers more opportunities to grow their businesses and give back to their communities. I'm proud of the work we've done on this issue and will continue to work hard so every business can thrive in our state."

In 2012, UIA in partnership with the Michigan Department of Treasury, refinanced a $3.2 billion debt owed to the U.S. Treasury with the issuance of bonds to cover the unprecedented increase in unemployment claims during that time. The bonds were to be repaid by quarterly Obligation Assessments on employers.

Although it was expected that it would take up to 10 years to satisfy the bonds, the bonds will be paid in full at the end of the fourth quarter of this year.

"Paying off the bonds early not only means tax savings for employers, but equally encouraging is the fact that a solvent Unemployment Trust Fund can guard against recession and ensure that temporary funds are available for unemployed workers," said Jeff Donofrio, director of the Michigan Department of Labor and Economic Opportunity.

"Our team identified a creative solution to eliminate the Obligation Assessment ahead of schedule without jeopardizing responsible management of the Unemployment Trust Fund," said UIA director Steve Gray. "Thanks to their proactive actions, employers will see a reduction of $65 - $217 per employee in 2020."

Employers will receive annual 2020 tax rate determinations in Dec. 2019 that will not contain an Obligation Assessment rate and may visit the UIA website to view their estimated tax savings.

Michigan's Unemployment Insurance program provides temporary monetary benefits to unemployed individuals. This allows Michiganders to continue supporting their families until they return to the workforce. Employers pay a state unemployment tax which is used solely to pay unemployment benefits.

Support from Michigan Stakeholders

"Long-term financing was absolutely the right solution to address the crisis-level financial insolvency in the Michigan Unemployment Insurance program. The investment in this solution prevented hundreds of millions in annual federal tax penalties, resulting in long term savings for employers financing the UI system. But make no mistake, the Obligation Assessment has added significantly to unemployment costs for Michigan employers. The early retirement of these bonds creates a significant savings for employers, making them more competitive and freeing up capital for greater investment and job growth." -- Delaney McKinley, Senior Director of Government Affairs and Membership, Michigan Manufacturers Association

"Today's announcement is great news for employers and employees alike. By retiring the bonds Michigan issued to repay over $3.2 billion in debt to the federal government for its 100 percent employer-financed UI system, employers will be relieved of the per-employee obligation assessment they have been paying since 2012. In freeing up these tax dollars, employers will be able to reinvest their businesses and double down on activities such as training and retraining top talent." -- Wendy Block, Vice President of Business Advocacy, Michigan Chamber of Commerce

Source