By James O’Rilley, CPA, MST – Shareholder

The Department of Treasury recently granted an automatic waiver of the penalties and interest related to underpaid estimated income tax for individuals who received Michigan unemployment benefits during the 2020 tax year. Since the waiver is automatic, individuals do not need to reach out to the Treasury for it to be applied. Below is more information about the existing state laws for estimated income tax payments and the waiver’s limits.

Michigan’s Estimated Income Tax State Law

Taxpayers must pay quarterly estimated income tax payments if the annual tax is anticipated to be more than $500 under state law. Any individual who received unemployment benefits in 2020 received income taxable in Michigan, but no applicable Michigan income tax was withheld. Therefore, individuals may have needed to pay quarterly estimated payments for the tax due on this income. Anyone who does not make the required payments is susceptible to interest and penalties.

Limits of the Waiver

Since the Treasury only waived interest and penalties pertaining to the quarterly estimated payment requirement for individuals receiving unemployment benefits, any other penalties or interest levied on the 2020 income tax return do not qualify for the automatic waiver.

It’s important to note the waiver does not alleviate taxpayers of their 2021 tax year responsibilities to make quarterly estimated payments. Like in 2020, individuals who anticipate their annual tax liability (after deduction of any credits or withholding) to be greater than $500 may need to make quarterly estimated payments. Instead of remitting estimated payments throughout this year, individuals have the option to have their state tax withheld by editing their account information through the Michigan Unemployment Insurance Agency. The estimated tax payment for the first quarter of 2021 is due Apr. 15, 2021.

If you have questions about the Treasury’s new automatic waiver and how your individual tax situation may be affected, contact Doeren Mayhew’s Michigan tax advisors today.