Michigan Payroll Taxes: What You Need to Know to Avoid Penalties

It can be incredibly easy to fall into the many pitfalls of payroll tax. Not only do they add up really fast, honest mistakes are common and lead to big penalties and interest. Things can quickly get out of hand and lead to civil and/or criminal lawsuits.

 

The Statistics

 

There are more than 15,000 tax laws in the U.S., averaging one change a day from 2001 to 2012.

 

A full one third of small businesses get fined for payroll mistakes, according to the Yahoo! Small Business Advisor.

 

Payroll taxes are even more problematic, with 40% of small businesses getting fined an average of $845 each year in penalties. This is a huge unnecessary cost, especially for those just starting out.

 

What’s more, according to the National Small Business Association (NSBA), business owners spend an average total of three weeks each year just sorting out payroll taxes. That’s three weeks of your time times your average ideal rate per hour/day, which equals a whole lot more $ down the drain.

 

Federal Withholding Forms

 

IRS forms start with the W-4, which also has a Spanish version and a version for Non-resident Aliens, depending on your employees.

 

There is also Form 673 for Claiming Exemption From Withholding on Foreign Earned Income based on Section 911 of the tax law.

 

Then, there’s Form 8233 for Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual.

 

State Withholding Forms and Rates

 

Michigan tax forms can be even more specific. In fact, Michigan is the only state that has different W-4 for many individual cities.

 

Michigan has the state W4 and Certificate of Nonresidency, the MI-W4 and MI-NR respectively.

 

Cities that have their own W4 forms are, in alphabetical order:

 

• Albion (AL-W4)
• Battle Creek (BS W-4)
• Big Rapids (BRW-4)
• Detroit (DW-4)
• Flint (FW-4)
• Grand Rapids (GRW-4)
• Grayling (GR W-4)
• Hamtramck (HW-4)
• Highland Park (HPW-4)
• Hudson (HU W-4)
• Ionia (IW-4)
• Jackson (JW-4)
• Lansing (LW-4)
• Lapeer (LW-4)
• Muskegon (MW-4)
• Muskegon Heights (MHW-4)
• Pontiac (PW-4)
• Port Huron (PH-W4)
• Portland (PW-4)
• Saginaw (SW-4)
• Springfield (SF W-4)
• Walker (WW-4)

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Withholding rates and exemption values also vary widely depending on the city:

 

1. 00% residents; 0.50 non-residents; $600 exemption
   1. Albion
   2. Flint
   3. Hamtramck
   4. Jackson
   5. Lansing
   6. Lapeer
   7. Muskegon
   8. Muskegon Heights
   9. Pontiac
   10. Port Huron
   11. Walker
2. Cities with same rate as (1) but with different exemption values:
   1. Battle Creek ($750)
   2. Grayling ($3,000)
   3. Hudson ($1,000)
   4. Ionia ($700)
   5. Portland ($1,000)
   6. Springfield ($1,500)
3. Cities with same exemption value as (1) but different rates:
   1. Big Rapids (1.50% / 0.75%)
   2. Detroit (2.40% / 1.20%
   3. Grand Rapids (1.30% / 0.65%)
   4. Highland Park (2.00% / 1.00%)

 

Other State Payroll Requirements

 

Aside from Federal/State withholding taxes, there are other contributions and laws that apply in Michigan:

 

1. State Unemployment Insurance (SUI): 0.06% to 10.3% depending on situation
2. Minimum Wage: $8.15 effective September 1, 2014
3. New Hire Reporting: Within 20 days (Form 3281 or MI W-4)
4. Withholding Child Support
5. Reciprocal States: Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin

 

Bottom line

 

As you can see, payroll and especially payroll taxes are something almost all small businesses will want to leave to the experts. Unfortunately, entrepreneurs by nature tend to try to do everything themselves. Do not make this costly mistake.

 

We at Hazzouri Accounting offer you over 16 years of expertise to ease this burden from your shoulders. We believe that our relationship with the local communities of Canton, MI and the surrounding areas take top priority, and easing their burdens in making a living is our calling. Contact us today at 734-844-1614 or fill out our contact form for more information on our complete, flat-rate payroll services.

 

You can also come find us on the web:  Facebook fan page / Twitter Feed / Google+ Account