Collecting Unemployment Benefits In Michigan

Who Pays For Unemployment Benefits In Michigan?

The accounting and taxation of unemployment agencies is fairly complex, here’s a basic overview that provides the details for how most of the program works. Michigan, like all other states, charges employers a tax to cover unemployment benefits. The tax is only charged on the first $9,000 per year an employee earns with the employer and ranges from .06% to 10.3% and is based on the history of that employer. A company that lays people off very infrequently could then pay as little as $5.40 per year per employee, while a company that lays people off very frequently may pay $927 per employee per year. This money goes into the Michigan Unemployment Trust Fund, which covers claims that don’t get paid directly by employers.

In addition to paying this tax, employers generally pay for the entirety of an employees unemployment check. The UIA will look at the base period of wages, which includes the first 4 of the most recently completed 5 quarters. All employers will be looked at and each one is responsible for paying a percent of the unemployment claim equal to the percent of earnings the employee had from each employer.

For example, if Bob worked for only one employer, ABC company, and was laid off through no fault of his own, then ABC company would pay directly 100% of his unemployment claim. If he was entitled to the maximum benefit of $362 per week, then ABC Company would pay $362 per week.

Now, let’s say that Jim also got laid off from ABC company, but in his benefit year he also worked for 123 company and XYZ company. Let’s say Jim earned $15,000 from ABC company, $10,000 from 123 company and $25,000 from XYZ company. If his weekly unemployment check were the maximum of $362 per week, then each company would pay:

ABC: $15,000/$50,000 = 30% X $362 = $108.60 per week

123: $10,000/$50,000 = 20% X $362 = $72.40 per week

XYZ: $25,000/$50,000 = 50% X $362 = $181.00 per week

Now, this only goes into effect after the first 2 weeks of the claim. The separating employer, the one that laid him off most recently has to pay 100% of the first 2 weeks claims. So ABC Company would pay $724 to Jim for his first 2 weeks, then ABC would only have to pay $108.60 per week for the remainder of the benefit claim.

Okay, So if the employers pay 100% of the claim anyways, why is the tax levied?

Well that tax covers unemployment benefits for when an employer in the base period is exempt from paying benefits, but the claimant still has a valid claim. For instance if you quit a job you are not eligible for unemplyoment benefits until you get another job and earn a certain amount, which is a percentage of what your unemployment check would be. It wouldn’t be fair to make an employer pay for unemployment benefits for an employee that voluntarily quit.

Let’s take another look at Jim.

If he quit the job at 123 company to work for XYZ, then was laid off by XYZ before getting his job with ABC, he would probably still be eligible for benefits since he had substantial earnings after his quit. In this scenario 123 should not pay his benefits, but it also isn’t fair to make the other employers pay for that portion of his unemployment. In this scenario the sources of his payments would look like this:

ABC: $15,000/$50,000 = 30% X $362 = $108.60 per week

123: (Employee Quit) $10,000/$50,000 = 20% X $362 = $72.40 per week (funded by MI UIA trust fund)

XYZ: $25,000/$50,000 = 50% X $362 = $181.00 per week

What If The Trust Fund Runs Out?

Michigan’s unemployment trust fund ran out during the great recession, in fact it acquired a debt of over $3 Billion. Michigan made changes to the program, which included increases in employer taxes and reduction in unemployment benefits from 26 weeks to 20 weeks. Michigan paid the federal government back the money it borrowed to keep the unemployment system working and has since built up one of the largest unemployment trust funds in the nation. As of September 30 of 2016 Michigan had an unemployment trust fund of over $3.3 Billion, with a gain of $479 million for the fiscal year. Currently Michigan unemployment is at its lowest level since the year 2000, hitting 3.7% in August. Since the trust fund is currently greater than the amount the fund went negative when unemployment shot up to double digits for 3 years in a row, Michigan is well prepared for any future employment crisis. At the end of 2015 only Washington and Oregon had higher trust fund balances than Michigan.

So the main point I’m making here is that unemployment benefits are paid directly by the employers involved and are not paid by individual local, state, or federal tax dollars. For a couple years during the economic crisis there were some benefits paid to those who were out of work longer than 20 weeks through federal extensions, which were funded by the federal government (ie tax dollars). This program is no longer in effect.

Qualifying For Unemployment Benefits In Michigan:

To determine if you qualify for a claim the state of Michigan looks at your earnings history and your reason for separation.  Typically if you quit your job you will not be entitled to unemployment compensation, likewise if you were fired for cause.  If you quit a job you have to meet what is called a “rework requirement”.  In Michigan this amounts to 12 times your weekly benefit amount.  If you would receive a maximum benefit of $362 per month, then after quitting a job you would have had to earn $4,344 at another employer before being eligible for benefits.

It’s possible that even if you do meet the rework requirement, your benefits will be challenged and you will have to explain why you quit the job and math out how you have met the rework requirement since then. You will want to write a letter that is very succinct and to the point that covers just what they need to know, including the statement that you have met the rework requirement by earning $X amount of dollars since you quit a job.  It is extremely important to make your biweekly unemployment claims, even if you haven’t won your dispute yet.  Once your dispute has been accepted you will receive a lump sum of all the weeks that you have claimed thus far.

Income Record:

When filing for benefits the Michigan Unemployment Agency will look at the first 4 quarters of the last 5 completed calendar quarters.  So, for someone filing a claim on October 21st, they would throw out quarter 3 of that year and look and quarter 1 and 2 of the current year and quarters 3 and four of the previous year.

To determine your total benefit amount they multiply your highest quarter by 4.1%.  If in your best quarter you earned at least $8,828 then you would qualify for the maximum benefit amount of $362 per week.  If your highest quarter was say $5,000 then you would qualify for a weekly benefit of $205.

After determining your weekly amount, they then figure out how long you can receive benefits for.  The minimum is 14 weeks and the maximum is 20 weeks.  They multiply the total of all your earnings for the base period by 43% and then divide this number by your weekly benefit amount.  For most people this number should greatly exceed the maximum of 20 weeks.

Work Search Requirements:

If you are receiving unemployment benefits in the state of Michigan you are required to look for work and to submit the information for at least 2 job contacts per week to the Unemployment Insurance Agency either by mail or by using their online program.   If you don’t have a return to work to work day you will also be required to go to a Michigan Works! location and register for work on the Michigan Talent Bank job search program.  It is extremely important to keep records of all your job contacts because Michigan Unemployment periodically audits claims.

During an audit a representative from Michigan Unemployment Agency will schedule a time to talk with you over the phone and will go over details for a two week period in which you filed claims.  They will ask about the jobs you applied for, why you applied for them, who you contacted, and what other things you did to search  for work during that week.  They will also ask about if there were restrictions on your availability to work during that time period, such as travelling or childcare.  Having all your documentation together and a good record of your job contacts will make this process much easier.

Tax-ability:

Unemployment benefits are taxed at the state and federal level, but are not taxed for Social Security or Medicare because unemployment benefits are not earned income.  You can choose to not have taxes withheld from your payments, but keep in mind that you will still have to pay taxes on this income.

Working In Multiple States:

If you work in multiple states you can choose to file a claim in any of the states that you performed work in.  This can make a substantial difference in total unemployment compensation.  Michigan’s weekly maximum benefit is fairly middle of the road compared to other states, however most states will provide benefits for up to 26 weeks, while Michigan limits its benefits to 20 weeks.  These factors are very important in deciding which state to file a claim in.

If Dave works for one employer based in Michigan and another employer based in Connecticut, it would be in his best interest to consider filing a claim through Connecticut Unemployment.  Why you ask? Because Connecticut has one of the highest benefit levels in the country. In Connecticut the maximum benefit is $616 per week instead of $362, and the claim can last for 26 weeks.  That works out to a maximum benefit of $16,016 Vs. $7,240 in Michigan.

 

Have you ever filed an unemployment claim?  What was the experience like for you?

John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. Check out the Action Economics archives section for all past posts.

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