Michigan Unemployment Insurance Tax Penalty

[Grady_Cheek]

Hello everyone, new member here looking for advice. I had an employee for the first time this year (previously I have used independent contractors) and had to open an account with the state. I hired a payroll service (OnPay, not someone I would recommend after this experience) to handle all of my filing.

Unfortunately the employee left rather suddenly after only around a week of employment, leaving me in the lurch. I contacted OnPay to cancel my service, which they did with little comment. Then, over six months later I received a notification stating that I owed over $300.00 in penalties with no explanation. After contacting the UIA directly they informed me that it was due to late filed quarterly reports.

I was never contacted through e-mail, phone, or snail mail regarding the late reports. When I spoke to the Tax Collections Unit they told me they had sent notices to my online account, which I hadn't accessed due to having no employees! This seems entirely unreasonable to me, since I was asked to pay less than $40 in UI tax to begin with! I am not even liable for the tax since I haven't employed anyone else since.

I am sending in a request for review, but is there anything else I can do to help my case? Any advice would be appreciated.

[vangogh]

I can't offer specific advice as I'm not an accountant and I have no experience with Michigan taxes. That said, I wanted to respond in the hopes that someone who knows more than I do will see this.

This probably isn't what you want to hear, but from what you've described the worst case is paying $300 to the state. I'm sure you'd rather not have to pay. I wouldn't either. Just keep in mind how much time you might have to put into fighting the fee. It's possible you'll have to invest more than $300 worth of your time to get out of paying. That might feel good, but in the end it only costs you more.

I know it also seems unfair and maybe the fee is larger than reasonable. However, it wasn't on the Tax Collections Unit to find you and notify you. It's on you to log in and check even if you didn't think you had to since you really didn't have any employees. Your best bet is to explain what happened and see if they'll waive the fee or reduce it. I wouldn't get too caught up in fighting it though. Chalk it up as a learning experience.

Hope that helps and hopefully someone else will chime in with better advice.

[Evan]

If you cancelled your payroll service and had processed payrolls with them, what were they doing for you? Did they withhold the taxes for you and not remit them to the state agency? Were they just providing you the calculations and you were to manually submit payments? You have here either a payroll provider who should have remitted taxes on your behalf or you hastily cancelled a service with little understanding of the consequences, likely both.

If you signed up to pay and remit taxes, it's your obligation to make sure those are being filed, even if you have a third-party provider doing it for you. You stated that they posted the notice to your online account and you didn't access it -- well that sounds like your fault. There likely was some sort of e-mail generated, maybe it hit spam, saying you had a new notification. A lot of system notices are going paperless, and you may have potentially signed up for this option. I'm not familiar with Michigan. The fact they sent you something by mail may have been their next measure to draw your attention to the matter.

All in all, if you're required to collect taxes and fail to remit, you can be penalized. If you're required to file a tax return, even if no balance is due, they can also penalize you for failure to file. Looks like you're getting hit with both. Sometimes they have the ability to waive fees and will do so, but there's no indication here why they should. It's not their fault you lost your employee and didn't notify them and never filed anything subsequent to registering with them. How else were they supposed to know this? And for failing to do anything on your part, you want them to waive the fees? I'm not suggesting they may not, but also try to view it from their angle. Also, you continue to be liable for taxes until they are notified. The fact you haven't had employees since that date may be persuasive in minimizing fees, and your ignorance of the rules may also be persuasive in waiving or minimizing fees, but likely not enough.

As a small business owner it can be frustrating when you get penalized for doing something wrong when you may not know it's wrong. Payroll taxes is one thing where I really don't recommend people do it themselves as simple slip ups and filing or paying a few days late can add up to hundreds or thousands of dollars in fees (depending on the amount) that the ordinary person should be willing to pay for it. Does it suck paying $500 - $1K for a service per year? Maybe. But things will get filed timely.

[tallen]

the employee left rather suddenly after only around a week of employment...

So you DID have an employee.... apparently long enough for you to incur some liability. Sorry, that's the way I see it....

[Trevor Maria]

It is interesting to read your blog post and I am going to share it with my friends.