Michigan Unemployment Question

[Snaggletooth]

Client has relocated to TN late in 2012 from Michigan where he drew unemployment from that state during all
of 2013.

Unemployment is taxable under Michigan tax law, however someone has told this client that if the funding source
for some of the Michigan unemployment was the Federal government, then Michigan would not tax any unemployment
funded by the Feds. Specifically, he drew from state coffers for 26 weeks, and then the unemployment from Michigan
ran out. The President extended benefits for another 20 weeks and after a delay of a few weeks, Michigan began
paying him again, but he was told Michigan was being funded.

He received a 1099G showing the entire amount he drew, not just the portion attributable to Michigan.

Any you folks up in the Wolverine State know what he's talking about?

[mastertaxguy]

Unemployment Benefits-Michigan Taxation

1. You could suggest the taxpayer/client go back to the source and have them do the return.

2. For 2011 and subequent tax years, unemployment benefits included in Federal AGI are fully taxable to Michigan. Your facts suggest he was/is a non-resident of Michigan, though.
Perhaps you may benefit from purusing the 2013 Tax Text Manual found on their web site, www.michigan.gov/treasury/taxes. Click on the Tax Practitioner link (which was/is in the upper left corner of the web page [but these change a lot, don't they?]). See pp. 37+. I might take the position that unemploymetn compensation is a federal benefit regardless of what state administers and pays the benefit(s). But I am not signing this return.

3. For several years, Michigan had a special subtraction for unemployment benefits. That was abolished for tax years begining in 2011. At its highest, that subtraction was $2300.00. As we all recall, for a while the first $2400.00 of federal unemployment benefits were not subject to income tax and excluded from AGI.

4. Taxpayers are generally allowed a credit against Michgian income taxes for income taxes paid to another state. As your TP is in Tennessee, which I am led to believe doesn't tax indivdiuals on unemployment benefits, no credit would be available.

5. One could always take the position that the Michigan unemployment is not taxable to Michigan any more than a pension paid to a non-resident of Michigan is subject to Michigan tax (I suppose).

[FEDUKE404]

Color me confused

... He received a 1099G showing the entire amount he drew, not just the portion attributable to Michigan. ...

Methinks you just answered your own question.

From the facts presented, it sounds as if the client has taxable income from MI (unemployment). IF there were two states (in the same year) involved, then you always could do the part-year resident thing, but since TN has no income tax (I think) there's not much to gather there. If there were non-MI wages for the same year that MI unemployment was received, there might be a break for MI income vs IRS income. That would only impact the MI tax return.

I am a bit curious as to how he was receiving MI unemployment benefits while (apparently) a long-term resident of TN. [ "Client has relocated to TN late in 2012 from Michigan where he drew unemployment from that state during all of 2013." ] I assume the Form 1099-G you reference is also for 2013?

Perhaps you should just let his "Michigan tax expert" prepare his taxes. . .

FE

[Snaggletooth]

Responses

Thank you for responses. There are more circumstances involved with residency, however I did not present them in the original post. Doing so only obfuscates the thought process unless they are relevant to the issue at hand. For example, he is a Tennessee resident drawing Michigan unemployment because he worked in Michigan during 2012. For that matter, he still has property in Michigan, but it is irrelevant to the issue.

Mastertax, I'm not aware of what went on in Michigan in years past, but client tells me they have become increasingly aggressive. The taxation of retirement under Michigan tax law is a very recent event, one that prompted him to move to Tennessee, where there is no income tax and no tax liability to ANYONE on out-of-state retirement.

He believes (from what he has been told) that his Unemployment should be in two segments - amounts drawn before the 26-week cutoff, and amounts drawn after Obama extended benefits for another 20+ weeks. He believes only the first segment is taxable under Michigan law, but the entire amount taxable under Federal law. The 1099G shows only one amount (the total) and discloses no separate information for state taxes.

I have indeed been on the Michigan website as suggested earlier, but can't find any mention of an exemption for ANY portion of Unemployment Benefits.

Thanks for your contributions.

[FEDUKE404]

Sleight of hand at work

It still is beyond me how a TN resident can (legitimately!) receive unemployment compensation from the state of Michigan.

The way I understand things, any unemployment would have to come from a TN source. Does MI even know he is a "TN resident" ?? My guess is, they don't.

What TN would or would not tax is a non-issue.

MI could not tax any retirement income *IF* he is a bona fide resident of TN. Of course, TN could/should tax same....but that point is moot.

From the outside looking in, it sounds as if he is trying to have it both ways. 1) Be a MI resident to get some (higher?) unemployment benefits and 2) Hide those benefits behind being a TN and not a MI resident and even 3) Call himself a TN resident so MI cannot (should not) tax his otherwise taxable to MI retirement income.

Of course, merely owning MI property would not, in and of itself, establish residency there.

Creative/crafty/slippery/whatever.....but he can't have it both ways.

Figure out which state he is a legal resident of.....and then move on!

FE

[Gary2]

It still is beyond me how a TN resident can (legitimately!) receive unemployment compensation from the state of Michigan.

If you qualify for unemployment from state X while a resident of state X, and then move to state Y while still eligible to collect unemployment, you continue to receive unemployment from state X. Depending on the state, that unemployment may or may not continue to be taxable to state X.

[Snaggletooth]

Off Topic

Creative/crafty/slippery/whatever.....but he can't have it both ways.
Figure out which state he is a legal resident of.....and then move on!FE

Federal Duke, please stop these innuendos that my client is sleazy, because NONE of your suspicions have addressed the original topic but have instead served only to divert attention to the question of whether any portion of unemployment is exempt from Michigan taxation. Absence of any posts which corroborate this, it's beginning to look more and more like it is totally taxable to MI.

It is not relevant to the question but just to satisfy your curiousity, I've known this guy and his family all his life. He lived and worked in Michigan until taking early retirement late in 2012. And because he worked in Michigan in 2012, he drew unemployment benefits from Michigan. His retirement is also from Michigan, therefore due to Supreme Court ruling, cannot be taxed by any other state.

Of course, none of this changes the fact that David Cutcliffe is still a class guy, assuming he happens to be in your part of Carolina. I'm not wild, however, about coach Krzmyxkswnbsklxz. He need to go somewhere and buy a couple vowels.

[FEDUKE404]

Who taxes what

Federal Duke, please stop these innuendos that my client is sleazy, because NONE of your suspicions have addressed the original topic...

I'm sure your client, like all of my own, is completely pure.

As for "addressing the topic," I thought I had. Still trying to wrap my head around how a full-year TN resident can continue to receive unemployment benefits from MI. (I assume you would file, if necessary, a non-resident income tax return for Michigan??)

As for your comment "His retirement is also from Michigan, therefore due to Supreme Court ruling, cannot be taxed by any other state," I believe that statement to be factually incorrect.

So far as I know, most states will (and may!) tax "foreign" state retirement income consistent with the manner in which any retirement income is taxed for their own residents. What is specifically excluded is an "originating" state imposing income tax on a bona fide resident of another state, e.g. if a retiree from NC became a resident of MI (or TN!) the NCDOR could never impose any income tax on said retirement benefits.

If your client were to be a resident of NC, his Michigan retirement would be taxed just like any other retirement. A couple of decades ago NC went through some court challenges also (selective taxation of NC government retirees benefits) which was indirectly related to the original Michigan Supreme Court (US) challenge. The NC retirees "won" (see Bailey ruling), and their government retirement can never be taxed by NC. Those who do not fall under the Bailey ruling (had to be with govt in mid-80's or earlier) now pay income taxes on their retirement just as does a retiree (NC resident) from XYZ corporation. Further, a NC resident whose government retirement originated from another state, can never claim any Bailey exclusions regardless of any underlying historical issues.

Have a good one.

FE

[Lion]

I don't know about MI. But, CT considers CT unemployment benefits as CT-sourced income and subject to CT tax whether the recipient still resides in CT or not. I have clients who lost CT jobs, started drawing CT unemployment, moved to a cheaper state to live and look for work or retire. The year of the move, they filed part-year returns for CT and their new state. The following year, if still receiving unemployment benefits, a CT NR return as well as their new state's resident return.

It's not difficult. Is it 26 weeks or more now? So, you move during the second half of the year you lost your job and began receiving unemployment benefits. You'll still be receiving unemployment benefits the following year when you no longer live in the state where you used to work. You'll file an NR return for the state providing your benefits that year as well as a resident return in your new state.

Are you thinking you lose your unemployment benefits if you move out of state?!

CT continues to pay as do many (all?) other states. I've had people that moved into CT still receiving benefits from the state where they used to work. In each case, the taxpayer has reported their move to their prior state, and the state shows the new address on the 1099G. Similarly, the CT 1099G shows my client's new address in their new state after they move.

Why do you think the OP or his client is doing something sleazy? Do you suspect the client has a new job that he hasn't reported to his old state's labor department? I didn't see anything like that in the OP.

[mastertaxguy]

Michigan sourced income

1. MIchigan's form for Non-resident and part year residents, Michigan schedule NR, contains the instructions (on the back).
2. None of the instructions mention unemployment income.
3. There are specific references to business type income, such as Michgian based rentals, wages, pass-throughs, salaries and EARNINGS from Michigan. Again, unemployment compensation is not listed.
4. Several items are listed, such as interest and dividends, "earned" while a Michigan resident and amounts as a non-resident. As I interpret this, unemployment is 'earned' while a non-resident in this fact scenario.
5. My position is, and has been, that for unemployment paid to a non-resident of Michigan resutling from Michigan employment is not taxable to Michigan.
6. Reasonable minds may differ. I just don't work for the Michigan Department of Treasury.
7. I have had this happen before with neighboring states, but there are agreements on tax credits and such that would usually zero it out anyway as to, for example, Ohio and Indiana. I just don't include it on the schedule NR for the part-year residents.
8. They (Mi Treas.) did come up with a form on changing domicle which I usally have affected TP's submit.
9. If the TP has michigan real property for which he may be claiming a "principle residence exemption" a different result might apply.
10. Interesting discussion.
11. If michigan income tax was withheld, of course a return could be filed claiming a refund (at least that is what I would advise).

[JohnH]

I'm sure your client, like all of my own, is completely pure.

As for "addressing the topic," I thought I had. Still trying to wrap my head around how a full-year TN resident can continue to receive unemployment benefits from MI. (I assume you would file, if necessary, a non-resident income tax return for Michigan??)

As for your comment "His retirement is also from Michigan, therefore due to Supreme Court ruling, cannot be taxed by any other state," I believe that statement to be factually incorrect.

So far as I know, most states will (and may!) tax "foreign" state retirement income consistent with the manner in which any retirement income is taxed for their own residents. What is specifically excluded is an "originating" state imposing income tax on a bona fide resident of another state, e.g. if a retiree from NC became a resident of MI (or TN!) the NCDOR could never impose any income tax on said retirement benefits.

If your client were to be a resident of NC, his Michigan retirement would be taxed just like any other retirement. A couple of decades ago NC went through some court challenges also (selective taxation of NC government retirees benefits) which was indirectly related to the original Michigan Supreme Court (US) challenge. The NC retirees "won" (see Bailey ruling), and their government retirement can never be taxed by NC. Those who do not fall under the Bailey ruling (had to be with govt in mid-80's or earlier) now pay income taxes on their retirement just as does a retiree (NC resident) from XYZ corporation. Further, a NC resident whose government retirement originated from another state, can never claim any Bailey exclusions regardless of any underlying historical issues.

Have a good one.

FE

I tie myself in knots sometimes trying to explain the Bailey decision to people That is one of the best explanations of the issue I have ever seen. Thanks FE.

[FEDUKE404]

About that Michigan thing

...
2. None of the instructions mention unemployment income.
...

"Unemployment benefits are taxable, and those who received benefits will need these statements to prepare their 2013 state and federal tax returns," said Shaun Thomas, director of the Unemployment Insurance Agency.

Copies of the 1099-G forms are also sent to the IRS and the Michigan Department of Treasury.

SOURCE: http://www.michigan.gov/uia/0,4680,7...9786--,00.html

Another....

"Copies of the 1099-G forms also are sent to the IRS and the Michigan Department of Treasury. So failing to report this income on your tax forms -- or neglecting to file at all -- is a bad idea."

SOURCE: http://www.mlive.com/jobs/index.ssf/..._are_taxa.html

And, finally, there is....

"Tony lost his job in Michigan in 2007 and started collecting unemployment insurance from his state. Since he couldn't find work there, he moved to North Carolina, hoping for better prospects. Meanwhile, Michigan continued to send him unemployment checks. When he filed his 2007 tax return on his own, he didn't include the unemployment income.

Along comes the IRS asking for taxes on his unemployment income. OK, Tony can understand that. But then, North Carolina sends a letter asking for their cut of the unemployment, too! Will Michigan be next?

Yes, Tony will be hearing from Michigan, too, because that state also assesses taxes on unemployment benefits.

A word of warning: Many of these states also tax non-residents who have received income from their state. So, if you move, remember to file in your old state, back home. "

SOURCE: http://www.marketwatch.com/story/une...ize-2010-02-12


Since I do not have a canine participating in this pursuit, I'm OUTTA here!!

FE

[JohnH]

"Tony lost his job in Michigan in 2007 and started collecting unemployment insurance from his state. Since he couldn't find work there, he moved to North Carolina, hoping for better prospects..."

Smart move there, Tony...

Just don't waste your time and ours constantly telling us how you all did things back in Michigan.
(we don't care, and besides it apparently didn't work out too well for you did it?)

[Snaggletooth]

Not so fast Federal Duke

Michigan[/color] be next?

Yes, Tony will be hearing from Michigan, too, because that state also assesses taxes on unemployment benefits.

Since I do not have a canine participating in this pursuit, I'm OUTTA here!!

FE

Before you get outa here, I should point out one important difference between your "Tony" and my "Jimmy". Don't know either MI or NC very well, but I do believe if Tony has to pay Michigan non-resident tax on Michigan - sourced unemployment, then he is entitled to a credit on NC taxes. The credit presumably would be at the lesser of MI or NC tax rates on the amount of income in question.

Jimmy, as a TN resident will have NO state taxes on any Michigan income because there is no general income tax in Tennessee, period. So unless Michigan taxes non-residents on Michigan-sourced unemployment, Jimmy is off the hook.

Mastertaxguy seems to think Michigan unemployment is not taxed to non-residents at all, and that would be great. It is not listed among items taxable to non-residents. However, it is not listed as a "subtraction" for purposes of computing taxes either. Mastertaxguy doesn't list his location, but he seems to know a lot about Michigan taxes.

[FEDUKE404]

Home state not relevant to what MI might tax

Before you get outa here, I should point out one important difference between your "Tony" and my "Jimmy". Don't know either MI or NC very well, but I do believe if Tony has to pay Michigan non-resident tax on Michigan - sourced unemployment, then he is entitled to a credit on NC taxes. The credit presumably would be at the lesser of MI or NC tax rates on the amount of income in question.

Jimmy, as a TN resident will have NO state taxes on any Michigan income because there is no general income tax in Tennessee, period. So unless Michigan taxes non-residents on Michigan-sourced unemployment, Jimmy is off the hook.

Mastertaxguy seems to think Michigan unemployment is not taxed to non-residents at all, and that would be great. It is not listed among items taxable to non-residents. However, it is not listed as a "subtraction" for purposes of computing taxes either. Mastertaxguy doesn't list his location, but he seems to know a lot about Michigan taxes.

I thought the question was whether "Jimmy" would owe MI income tax? A rudimentary review of the MI income tax booklet shows that MI starts with federal AGI. One would assume that the unemployment compensation as reported on the Form 1099-G would be included in that amount. You may then wish to read very carefully the instructions for line 11 of MI Schedule NR, however. Need I repeat that suggestion?

As for "Jimmy" or "Tony" or "Whoever" ---- most states will allow a state income tax credit to a resident for income taxes paid to a "foreign" state. The real state of residence will have zilch to do with the tax, if any, which MI might impose. For a state like TN, with no state income tax, you can't get much lower than zero. For ANY state which has an income tax, there would be a strong likelihood of a tax credit based upon the income/taxes relevant to MI.

Granted, your "Jimmy" would never pay any TN income tax. Nor could he receive a TN income tax credit based upon the MI taxes paid. DUH! But that issue is totally irrelevant to any taxes that might (separately) be imposed by MI.

Why not just download the MI tax software and see what falls out? I have not prepared a MI return in several years, but a very cursory glance indicates "Jimmy" is likely off the hook as for owing any MI taxes (think line 11. . . .), but he MAY still need to file a non-resident MI return to keep the Lansing vultures away.

I'm sure there are some folks on these boards who have MI tax experience and could clarify what you need to do?

FE