Michigan Surplus Lines Tax: Rate, OPTins Filing, and Penalties

The Michigan surplus lines tax is a combined 2.5% assessment on gross premiums: a 2% premium tax plus a 0.5% regulatory fee, charged whenever coverage is placed with an insurer not licensed in Michigan.¹² A licensed surplus lines producer normally reports and pays it; if a business bought the coverage directly from a non-admitted insurer, the business itself owes the tax.

How the 2.5% Is Calculated

The 2% tax and the 0.5% regulatory fee both apply to the same base: gross premium written for the Michigan portion of the risk. The regulatory fee is authorized under Section 451 of the Michigan Insurance Code.³ Multiply the premium by 0.025. On a $40,000 commercial policy, tax and fee together come to $1,000. The charge is passed through to the policyholder, and it applies regardless of where the non-admitted insurer is domiciled.²

Who Files: Producer or Policyholder

Most surplus lines business runs through a Michigan-licensed surplus lines producer. Reporting and remitting the 2% tax and 0.5% fee on every Michigan placement is a condition of that license.¹ The producer collects the amounts inside the premium transaction and files with the state.

Independently Procured Insurance

When a business or self-insurer buys coverage directly from a non-admitted insurer without a Michigan-licensed producer, the tax obligation shifts entirely to the insured. The same 2% and 0.5% apply, and the insured must file a written report with the Commissioner within 30 days of procuring, continuing, or renewing the coverage. The report identifies the insured and insurer, describes the coverage, and states the premium charged.⁴ The 30-day window is tight, and businesses used to letting a broker handle everything often miss it.

When Michigan Gets the Tax: the Home State Rule

Since July 21, 2011, the federal Nonadmitted and Reinsurance Reform Act has controlled which state collects surplus lines tax. Only the insured’s home state does, and if Michigan is the home state it takes the full 2.5% on the entire premium, even when the risk covers other states.² Home state means the insured’s principal place of business, or for an individual the state of principal residence; if none of the risk sits in that state, the home state becomes the state with the largest share of taxable premium. For affiliated groups on one policy, the member with the largest premium share controls.⁵

Michigan does not accept courtesy filings that split tax among multiple states on a multi-state risk. If Michigan is the home state, it expects the whole 2.5%.²

Filing Deadlines

Producers file semi-annually. Michigan has no annual report.² The two periods:

January through June: report and payment due August 15.
July through December: report and payment due February 15 of the following year.

Each filing must include a sworn statement of premium charged and any amounts returned on cancelled policies during the six-month period.¹ Independently procured coverage is different: the insured files and pays within 30 days of procuring or renewing the policy.⁴

Zero Reports

Holding the license but writing no Michigan business during a period does not excuse a filing. DIFS requests a zero report for each period with no activity.² Skipping the filing because there was nothing to report is a common way to get flagged for non-compliance.

How to File Through OPTins

Since July 1, 2012, Michigan has required electronic filing and payment through OPTins, the Online Premium Tax for Insurance system operated by the National Association of Insurance Commissioners.⁶² Users log in, upload the Michigan forms, enter the tax and fee amounts, and pay by EFT. OPTins generates a confirmation and transaction summary; keep them, because they are the practical proof of compliance if DIFS opens a tax examination.

Records supporting each transaction should be retained as well: insurer legal name, policy numbers, effective and expiration dates, and gross premium. Declaration sheets are not submitted with the report, but DIFS can request them during an examination or on-site audit.²

Credits When a Policy Is Cancelled

If a policy is cancelled mid-term and premium is returned, the producer takes a credit against tax owed in a future filing period. DIFS has no statutory authority to issue direct refunds of surplus lines tax already paid, so the credit is the only route to recover an overpayment.² Keep the documentation supporting the cancellation.

Late Filing and Penalties

DIFS monitors the timeliness of surplus lines tax reports and payments. Late filers may be assessed a Market Conduct fee authorized under the Michigan Insurance Code.² Chronic late filing or non-filing can also put the license itself at risk, because timely reporting and payment is an express condition of licensure.¹

For independently procured coverage, the 30-day window is unforgiving. A business that discovers the obligation months after binding faces the tax and potential penalties for the delay. If you buy coverage directly from a non-admitted insurer, calendar the filing the day you bind.

One Note on the Guaranty Association

Before placing coverage with a non-admitted insurer, a producer must tell the policyholder that the insurer is not licensed in Michigan and that claim payment may not be guaranteed if the insurer becomes insolvent.¹ The Michigan Property and Casualty Guaranty Association backstops admitted carriers, not surplus lines carriers, so a policyholder paying the 2.5% assessment is not paying into a state safety net.

1
Michigan Legislature. Michigan Compiled Laws 500.1905 – License Required to Act as Agent or Broker in Transaction of Surplus Lines Insurance
2
Michigan Department of Insurance and Financial Services. Surplus Lines Licensee Filing the Surplus Lines Taxes
3
Michigan Legislature. Michigan Code 500.451 – Taxes on Unauthorized Insurers; Regulatory Fee; Payment
4
Michigan Legislature. Michigan Compiled Laws 500.1951 – Procuring, Continuing, or Renewing Insurance With Unauthorized Insurer; Report; Tax on Premiums; Regulatory Fee
5
Office of the Law Revision Counsel. 15 USC 8206 – Definitions
6
National Association of Insurance Commissioners. Online Premium Tax for Insurance