On December 19, 2011 Governor Rick Snyder signed legislation to deal with Michigan’s bankrupt unemployment insurance system. Part of this legislation allowed for the State of Michigan to retire the Federal debt and issue $3.323 billion in revenue bonds, which they did on December 28, 2011.  By refinancing the debt, the FUTA credit reduction was reset to zero in 2012.

There are a couple of key changes you will want to keep in mind. The Obligation Assessment will be applied on all contributing employers, not just those with a negative balance like the previous solvency rate, until the bonds are repaid. The bonds are on a 10-year repayment schedule. The Obligation Assessment will be reported as a line item on Form UIA 1771, Tax Rate Determination for Calendar Year 2012. This new assessment will be determined on an annual basis and included on your annual Tax Rate Determination.

Also, effective in 2012, the taxable wage base will increase from $9000 to $9500 until the Unemployment Trust Fund reaches $2.5 billion. The base will go back to $9000 if the fund balance can remain at $2.5 billion (net of benefits paid) for two consecutive quarters.

If you have any questions or would like further explanation on this matter please contact your H&S tax professional.