Comprehensive Guide to Payroll Taxes in Michigan

Organizations hiring in Michigan need to be aware of the state and federal payroll tax requirements for employers, to ensure full compliance. This article provides a comprehensive overview of Michigan payroll tax regulations.

General overview

Michigan employers are required to withhold and remit several state and federal taxes on behalf of their employees. These include Federal Income Tax, State Income Tax, FICA Tax, and Local Income Tax, if applicable.

As an employer in Michigan, you're also obliged to fund programs such as State Unemployment Insurance (SUI) and Workers' Compensation Insurance, in addition to the federal FICA Tax and Federal Unemployment Tax (FUTA).

Income Taxes

Michigan employers must withhold personal income taxes from their employees' salaries, including Federal Income Tax, State Income Tax, and Local Income Tax (if applicable).

Federal Income Tax is calculated based on the employee's earnings and any exemptions they're eligible for. As in all states, employers must remit this to the IRS via the IRS’ Electronic Federal Tax Payment System (EFTPS). The following deadlines apply:

• Monthly filers: The 15th of the next month
• Semiweekly filers: The following Wednesday for Wednesday, Thursday, or Friday paydays, or the following Friday for Saturday, Sunday, Monday, or Tuesday paydays
• Next-Day Deposit Rule: The next business day if you accumulate $100,000 or more in taxes on any day

State Income Tax is levied at a flat state income tax rate of 4.25%. Employers must remit the withheld amount to the Michigan Department of Treasury. The Michigan Treasury Online (MTO) online portal allows employers to file, manage, pay withheld taxes. Monthly, quarterly, or annual Electronic Funds Transfer (EFT) filers must submit payments on or before the 20th day of the following month. Accelerated EFT filers must remit withholding taxes on or before the due date for federal payments, using either EFT Credit or EFT Debit.

Local Income Tax is levied in the following cities in Michigan, in addition to Federal and State Income Taxes. Different rates apply to residents and non-residents who work in the city:

Employers generally remit the withheld Local Income Tax directly to the specific city's income tax department or treasury. Some cities enable payment via electronic payment options or third-party systems., and the required filing frequency varies. You can find out more from the cities' official websites and tax departments.

Social Security and Medicare (FICA) Taxes

FICA (Federal Insurance Contributions Act) payroll taxes include Social Security and Medicare contributions, which Michigan employers are required to withhold and remit.

• Social Security: employees are taxed at 6.2% on their entire salary, up to the 2024 annual wage limit of $168,600 USD.
• **Medicare Tax: **Employees pay a Medicare tax of 1.45% on their full income
• Additional Medicare Tax: A further 0.9% is levied on high earners with an income over $200,000 for single filers, or over $250,000 for married couples filing jointly.

Employers are required to match employees' Social Security contributions and Medicare Tax, but are exempt from Additional Medicare Tax payments.

State Unemployment Insurance (SUI)

State Unemployment Insurance (SUI) is an employer-funded program which provides temporary unemployment benefits for workers unemployed through no fault of their own. Michigan employers are required to register with, and to make SUI contributions on behalf of their employees to the Michigan Unemployment Insurance Agency (UIA).

The SUI tax rate for employers varies based on several factors, including your experience with unemployment claims. New employers generally pay at a standard new employer rate until they establish an experience rating, which is set at 2.7% for non-construction businesses. The elevated risk of unemployment claims in the construction sector means a higher rate of 9% applies for construction employers.

Michigan UIA determines existing employers' annual SUI rate, ranging between 0.06% and 10.3%, dependent on your experience rating and rate-reducing factors such as voluntary contributions.

You can conveniently register and submit SUI payments online through the Michigan Web Account Manager (MiWAM) online portal.

Paying your Michigan workers’ compensation

All private and public employers in Michigan who regularly employ one or more full-time, part-time, seasonal, or temporary employee must provide workers' compensation (WC) insurance coverage. Some exemptions apply. Workers' compensation covers medical expenses, lost wages and benefits, and other compensation for employees who suffer job-related injuries or illness. Employers can obtain this insurance through a private insurance carrier, self-insure (if they meet certain qualifications), or participate in a group self-insurance program.

Employers must promptly report any work-related injury or illness to their insurance carrier. Failure to comply with Michigan's workers' compensation laws can result in penalties, including fines and possible imprisonment, as well as being held liable for the costs of injuries sustained by employees.

Regardless of the number of employees, workers' compensation insurance is crucial, as it offers protection to employees in the event of job-related injuries or illnesses. To find out more, visit the Michigan Department of Labor and Economic Opportunity's official website.

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