Employees' Tax Responsibilities

• Under Michigan's income tax laws, unemployment benefits are taxable, and taxpayers must report their unemployment income earnings on a quarterly basis and are subject to estimated tax payments. Additionally, Michigan residents are subject to the federal tax requirements. The IRS taxes unemployment benefits as regular earnings after 2009. For 2009, the IRS excluded the first $2,400 of unemployment benefits as taxable income. Under Michigan law, the Michigan Department of Treasury may withhold income tax refunds to offset overpaid unemployment benefits. If claimants received an overpayment, the state requires them to immediately repay benefits, and if they fail to repay their benefits, the state may intercept their tax refunds.
  
  

Employers' Tax Responsibilities

• All employers must pay unemployment taxes unless they obtain an exemption as seasonal employers or waive self-coverage as sole proprietors. They must pay benefits to their unemployed workers who qualify for unemployment benefits.
  
  

Tax Rate

• The IRS requires taxpayers to withhold 10 percent of their unemployment income and file quarterly quarterly tax payments. The Michigan Unemployment Insurance Agency can withhold both federal and state taxes from recipients' unemployment benefits on a weekly basis. Alternatively, taxpayers can choose to have their taxes withheld in one lump-sum payment during their benefit year. Taxpayers must include their taxable unemployment benefits on their 1099-G, Certain Government Payments.