Treasury: Michiganders Granted Relief from Unemployment Benefit Tax Penalties and Interest

Michiganders who collected state unemployment benefits last year will not be required to pay penalty and interest related to underpaid estimated tax payments, according to the Michigan Department of Treasury.

Effective immediately, the state Treasury Department has granted an automatic waiver of all penalties and interest related to underpaid estimated tax payments owed by taxpayers who received unemployment benefits in 2020.

Under state law, taxpayers are required to pay quarterly estimated tax payments when the annual tax due is expected to exceed $500 or more. Taxpayers who fail to pay an estimated quarterly tax payment are typically subject to penalties and interest.

“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. “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.”

All taxpayers who received unemployment during the 2020 tax year will automatically receive this waiver. Because this waiver is automatic, taxpayers do not need to contact the state Treasury Department or provide any additional documentation for a waiver be applied.

“This is the right thing to do,” State Treasurer Rachael Eubanks said. “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.”

Unemployment benefits are subject to federal and state taxes. Taxpayers who chose to not have taxes withheld from their benefits will owe any outstanding tax.

Additional details related to waiver of penalties and interest on estimated tax payments can be found in the state Treasury Department’s Notice to Taxpayers, “Estimated Tax Penalty and Interest Waiver for Individuals who Received Unemployment Benefits in Tax Year 2020.”

The state of Michigan will begin processing state individual income tax returns on Feb. 12. For the benefit and convenience of taxpayers, both the beginning and end of the individual income tax filing season are the same as the Internal Revenue Service.

To learn more about the state of Michigan’s individual income tax, go to www.michigan.gov/incometax.