Michigan Department of Treasury won’t charge interest, penalties on 2020 unemployment benefits

(The Center Square) – Those unfortunate out-of-work residents who received Michigan unemployment checks as well as the $600 additional weekly federal payments may face a considerable tax liability for 2020.

Michigan’s unemployment rate soared as high as 20% of the workforce during 2020, according to the Michigan Department of Technology, Management and Budget. Nationwide, that figure peaked at 14.8% last April.

Federal stimulus checks and state unemployment checks were often the only means by which Michigan families could eke out the economic downturn caused by the COVID-19 pandemic.

Tax filers who collected unemployment in 2020 will receive relief from penalties and interest on underpaid estimated tax payments, announced the Michigan Department of the Treasury on Wednesday.

State law requires taxpayers cough up estimated quarterly tax payments when their annual tax due exceeds $500. In past years, those who didn’t make those payments were subjected to interest and penalties.

“Unemployment benefits have been a lifeline for many families during this pandemic, helping them put food on the table and pay the bills,” Gov. Gretchen Whitmer said in a statement. “Some Michiganders could have faced income tax penalties on their unemployment benefits, and I’m glad we can take prompt action to provide much needed relief for Michigan households.”

The waiver will apply automatically to all taxpayers who received unemployment during the 2020 tax year. Taxpayers do not need to contact the state Treasury Department or provide any additional documentation for a waiver to be applied.

“This is the right thing to do,” State Treasurer Rachael Eubanks said in a statement. “COVID has disrupted our lives in numerous ways – and many Michiganders are depending on unemployment benefits to get them by during this extraordinary time. Having to pay penalties and interest on unemployment benefits is the last thing individuals should be worried about when they go to pay their taxes.”

Only six states don’t tax unemployment benefits, and seven additional states don’t tax any income whatsoever. Michigan, however, belongs to neither category.

A tax map compiled by Kiplinger’s last November rated Michigan among the top 9 of its “Least Tax Friendly” states. The state collects a flat 4.25% income tax. Kiplinger noted it placed Michigan in the “Least Tax Friendly” category due to high property taxes.

The state of Michigan will begin processing state individual income tax returns on Feb. 12.

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