Michigan Payroll Tax Penalties and Interest Checklist
What This Issue Means
Michigan payroll tax penalties and interest are additional charges the Michigan Department of
Treasury adds to unpaid payroll taxes. Penalties apply when returns are filed late or when payments are not made by the due date under the Revenue Act. Interest accrues daily on any unpaid balance from the original due date until the debt is fully paid. These charges become part of your total tax liability and must be paid along with the original tax amount.
Why the State Issued This
Michigan law requires employers to file payroll tax returns and remit withheld taxes by specific deadlines. The Department of Treasury automatically imposes penalties and interest when these deadlines are missed under Michigan income tax withholding requirements. This administrative process encourages timely compliance and compensates the state for delayed tax revenue. The state applies these charges at specific interest rates outlined in Michigan tax law, without requiring a separate assessment notice in most cases.
What Happens If This Is Ignored
Your total debt continues to grow as interest accrues daily on the unpaid balance. The
Department of the Treasury escalates collection efforts by sending additional notices, placing your account with a collection agency, or pursuing wage garnishment or property liens. The state may also suspend your business license or sales tax permit. Michigan has a six-year statute of limitations for collection through civil litigation, though administrative collection actions may extend beyond this timeframe.
What This Does Not Mean
Receiving a notice about penalties and interest does not mean you are facing criminal charges or Corporate Officer Liability. Payroll tax debt is a civil matter unless fraud is involved. The state has not yet filed a lawsuit against you simply because penalties and interest have accrued. You still have opportunities to address the debt before the most serious collection actions occur, including requesting penalty abatement or negotiating a payment plan.
Types of Michigan Payroll Taxes Affected
Understanding which payroll taxes may be subject to penalties and interest helps you identify the specific obligations involved in your notice.
- Income tax withholding: Employers must withhold Michigan income tax from
employees' wages using Form MI-W4 and remit the amounts to the state. Failure to remit withheld amounts on time results in penalties calculated at 0.167 percent per day up to a maximum of 25 percent.
- Unemployment insurance taxes: Employers must pay unemployment taxes to the
Michigan Unemployment Insurance Agency based on taxable wage base calculations.
Late payments or unfiled quarterly returns under Form UIA 1028 result in penalty assessments and daily interest charges on the unpaid amounts.
- Local income taxes: Employers in Michigan cities with a city-level income tax, such as
the City of Detroit, the City of Albion, and the City of Hudson, must withhold and remit local income taxes. These obligations are separate from state withholding and may involve different filing systems, such as Detroit’s E-Filing System or the Detroit Income
Tax Portal.
Step-by-Step Checklist
Step 1: Locate Your Most Recent Notice
Find any letter, assessment notice, or collection notice from the Michigan Department of
Treasury related to payroll taxes. Write down the notice date, your Michigan Withholding
Account Number or Federal Employer Identification Number, and the total amount due if shown on the notice.
Step 2: Review the Notice Details
Read the entire notice to identify the penalty type, the tax period involved, and the amounts of penalty and interest charged. Note any deadline mentioned for payment or response to understand which specific payroll taxes are involved, such as income tax withholding or unemployment insurance taxes.
Step 3: Contact the Department of the Treasury
Call the Department of Treasury at 517-636-6925 for business tax registration questions or
517-827-3227 for business collections inquiries. Request your current account balance and a detailed breakdown of penalties and interest, with confirmation of which tax periods are involved.
Step 4: Verify the Calculation
Compare the tax periods listed by the state to your own payroll filing records if you have access to them. Check whether returns were actually filed late or payments were made after the due date using your Form W-2, Form 941, or Form 5080 records to identify any discrepancies.
Step 5: Gather All Documentation
Collect copies of payroll tax returns filed, payment receipts, cancelled checks, and bank statements showing payments made to the state. Organize these documents by tax period, along with Form 5081, W-2 forms, and any correspondence you have received from the state related to this account.
Step 6: Determine Penalty Abatement Eligibility
Review Revenue Administrative Bulletin 2022-24 to see if your situation qualifies for penalty abatement based on reasonable cause. Reasonable cause includes serious illness or death, fire or natural disaster, criminal acts against you, or erroneous written advice from the Department of the Treasury.
Step 7: Prepare Your Written Request
If you believe penalties were assessed in error or you have reasonable cause for late payment, prepare a detailed written explanation with supporting documentation. Include your Michigan
Withholding Account Number, the tax periods in question, and all relevant documents to support your request for a penalty waiver.
Step 8: Submit Your Request
Send your written request by mail to the Michigan Department of Treasury, Collection Services
Bureau, P.O. Box 30199, Lansing, MI 48909. Request written confirmation that your submission was received to ensure the Department has your abatement request on file.
Step 9: Follow Up Within 30 Days
Contact the Department of the Treasury again if you do not receive a response within 30 days of submission to confirm receipt. Ask for an estimated timeline for a decision and keep a record of this follow-up contact for your documentation.
Step 10: Explore Payment Options if Denied
If the state denies your abatement request, contact them to discuss available payment plans, installment agreements, or Offer in Compromise options. Ask about the terms, including how long the plan lasts and whether additional interest continues to accrue during the payment period.
Step 11: Document All Communication
Keep copies of every letter, email, and note from phone conversations with the Department of the Treasury with dates and names. Record dates, staff member names, and summaries of what was discussed for future reference if you need to appeal to the Michigan Tax Tribunal.
- Ignoring notices: Many taxpayers receive collection notices but do not open or respond
- Paying only the original tax: Sending the state a partial payment covering only the
- Missing response deadlines: If the state gives you a deadline to respond to a notice or
- Assuming penalties disappear: Penalties and interest do not expire or disappear on
- Not requesting account breakdown: Some taxpayers do not ask the state exactly
- Confusing state and federal obligations: Michigan payroll tax requirements differ from
- State tax notice review and response
- Penalty and interest reduction options
- Payroll and trust fund tax assistance
- Payment plan and relief eligibility review
- Representation with state tax agencies
Step 12: Monitor Your Account Status
Check your account status with the Department of Treasury periodically through Michigan
Treasury Online or the Michigan Web Account Manager to confirm whether penalties have been adjusted. This helps you stay aware of any changes to your debt balance and ensures collection action has been halted if applicable.
Common Mistakes to Avoid to them, which allows the debt to grow with compounding interest. Every notice from the
Department of the Treasury deserves a prompt response to prevent further penalties and collection actions. original tax does not satisfy the full debt obligation. Penalties and interest must be paid in full or included in a formal payment plan to resolve the account. submit documentation, meeting that deadline is critical. Missing the deadline can result in automatic denial of your request or loss of your right to appeal the assessment. their own; they require formal action by the state. They continue to accrue until the full debt is paid or a formal resolution is reached with the Michigan Department of Revenue. what they owe and why, making it impossible to verify charges. Always request a complete breakdown from the Department of the Treasury to identify any errors in the penalty or interest calculations.
Internal Revenue Service requirements, and unpaid individual income taxes are handled separately from business withholding obligations. Understanding these distinctions prevents confusion when addressing your tax liability with the appropriate agency.
Received a State Tax Notice?
If you’ve received a state tax notice and aren’t sure how to respond, we can help you review your options and next steps.
20+ years experience • Same-day reviews available
