According to the Unemployment Insurance Agency (UIA) of the State of Michigan Department of Licensing and Regulatory Affairs in Fact Sheet 139, the FUTA tax credit reduction rate will increase from 0.6% in 2010 to 0.9% in 2011. Since the determination will not be made until November 1, 2011, this is only a projection at this time.

Standard Credit Rate is 5.4% for 2011

Generally, employers who pay their state unemployment tax by the due date for filing Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return receive a credit 5.4% against their Federal Unemployment Tax Act (FUTA) tax. This credit is claimed on Form 940.

Employers in Certain States Are Subject To Credit Reduction

Federal law provides for a reduction in the FUTA tax credit when a state has outstanding federal loans for two years. The credit reduction is calculated on Schedule A of Form 940.

Michigan Is Subject To Credit Reduction for Third Consecutive Year

Since Michigan was already subject to a credit reduction in 2009 and 2010, the credit reduction will increase to 0.9% for 2011. The credit reduction will continue to increase by 0.3 percentage points each year until the loan is paid, e.g., 1.2% in 2012, 1.5% in 2013, etc.

Rebate Offered To Fully Experienced Employers with a Positive Balance

Fully experienced employers with a positive balance may claim a credit using Form UIA 1110. The credit is the lower of 50% of the additional tax paid due to the credit reduction or the taxable wages for the year of the credit reduction multiplied by the employer’s Nonchargeable Benefits Component (NBC). Based on the eligibility conditions for prior years, the expected eligibility conditions for a 2012 tax credit should be as follows:

1. Your “actual reserve” balance as of June 30, 2010 as shown on your 2011 annual tax rate determination must be positive. If the “actual reserve” is a negative figure, refer to Voluntary Payment information at www.michigan.gov/uia.
2. In 2011, you are in your fifth or subsequent year of coverage with the UIA (you are a fully experienced employer).
3. You pay the 2011 FUTA credit reduction to the Internal Revenue Service prior to January 1, 2013.
4. You certify on Form UIA 1110 the amount of additional FUTA tax you paid for 2011 as a result of the credit reduction.
5. You have taxable wages with UIA in the 2011 calendar year.

Vision Payroll Will Calculate the Credit Reduction for All Michigan Clients

Contact Vision Payroll if you have any further questions on the Michigan credit reduction.