For the sixth consecutive year, Michigan sliced its unemployment tax rate, meaning that most employers throughout the state will save 10 percent on their jobless tax bills.
“As we enter the 21st century, Michigan’s economy continues on the same strong note that it has enjoyed for most of the 1990s,”said Gov. John Engler. “And that tune is one of low unemployment and low unemployment taxes for our employers.”
The governor estimated that this year’s tax cut will equal $200 million. By the end of 2001, Engler said that employers will have saved over $1 billion in the state’s jobless taxes since 1996.
Once again, the tax cut was granted because the state’s unemployment insurance trust fund has a substantial cash reserve. The fund is where tax dollars are deposited and then withdrawn to pay unemployment benefits.
“Most of the 217,700 employers covered by the state’s unemployment tax program will benefit from the continued reductions in unemployment taxes,” said Kathy Wilbur, director of the Department of Consumer & Industry Services, which oversees the Unemployment Agency.
Wilbur explained the state is reducing the jobless tax rate in two ways this year.
First, an estimated 164,000 employers will get a 10 percent across-the-board cut on their tax bill.
Second, more than 106,000 employers will get a reduction in their account building component (ABC). The maximum ABC rate will be kept at 2 percent, instead of the normal 3 percent, and the state will lop the ABC multiplier in half from 0.5 to 0.25. This year will mark the fourth consecutive cut to the ABC.
“The 10 percent cut and the ABC reduction will each save employers about $100 million, leading to a total savings of $200 million in 2001 state unemployment taxes,” said Jack Wheatley, director of the state’s Unemployment Agency.
The 2001 tax rate will continue to range from 0.1 to 8.1 percent. Without the cuts, the rate could have reached 10 percent. For the past year, the average tax rate was estimated at 2.6 percent.
Employers pay state unemployment taxes on the first $9,500 of each employee’s earnings. Wheatley reported that employers can expect to pay as little as $9.50 to $769.50 per worker for 2001. He said savings could go as high as $180.50 per employee over normal tax rates.
“For those 22,900 employers with the lowest possible tax rate of 0.1 percent, they will pay less than 80 cents per month for each employee to insure them with jobless benefits,” said Wheatley. “Nearly 60 percent of Michigan’s employers will have a rate of less than two percent.”
The tax cuts will apply to employers who have been in business for at least five years. The tax-cut notices were sent late last month.
The unemployment insurance law calls for a 10-percent tax cut when cash reserves in the trust fund reach 1.2 percent of all Michigan payrolls. Wheatley said the fund totaled about $3 billion last June and was expected to reach $3.06 billion by year’s end, well over the required minimum.
Wheatley said about $865 million in unemployment benefits would be issued for 2000, a year in which the state collected about $1 billion in jobless taxes. In 1999, the agency issued $842.7 million in benefits, while it collected $990.9 million in taxes.