According to Minnesota Law §268.035, Subd.20 (29), corporate officers owning 25 percent or more of a corporation directly or indirectly through another legal entity such as a subsidiary or holding company are not subject to Minnesota Unemployment Insurance tax. Additionally, wages paid to members of a limited liability company (LLC) who own 25 percent or more of the LLC directly or indirectly through another legal entity such as a subsidiary or holding company are also not subject to Minnesota Unemployment Insurance tax.
Do not report these owners/officers or their wages on your Unemployment Wage Detail Report unless you have elected optional coverage for them.
You can elect to cover the wages of owners/officers.
- The election must apply to ALL owners/officers as a class.
- You will be required to report, and pay Minnesota unemployment tax on, wages paid to the optionally covered owners/officers for at least two full calendar years.
- The owners/officers may be eligible to collect unemployment benefits according to the limits prescribed in Minnesota Law §268.085, Subd.9.
- You should inform the Minnesota Unemployment Insurance Program as soon as possible of your decision to elect coverage.
The easiest way to elect coverage is using the online Employer Self-Service System. You can also elect coverage by phone at 651-296-6141, press 4 to speak to a representative.
Refer to Elect Coverage for Noncovered Employees in the Employer Self-Service System User Guide for step-by-step instructions.
Filing an election for optional coverage
Elections may be submitted at any time. However, coverage will not become effective until the first day of the calendar quarter following the calendar quarter in which the election of coverage was approved. Once an election has been approved, it must stay in effect for a minimum of 2 calendar years (i.e. if the election occurs AFTER the first calendar quarter, the election will stay in effect for the remaining quarters of the year in which the election is made PLUS two additional calendar years).
Impact on your business if you do not elect for optional coverage
Unless you elect for optional coverage for a noncovered owner/officer, you should not report wages paid to these individuals on quarterly wage detail reports or pay Minnesota UI tax on their wages. This applies ONLY to Minnesota state unemployment tax.
You should contact your accountant or tax advisor to obtain more information on:
- What effect this change may have on other employment taxes, such as federal unemployment tax (FUTA).
- How the exclusion of these owner/officer wages from Minnesota UI tax may increase your FUTA tax liability.
Family Members as Employees
Family member's wages must be reported unless they own 25 percent or more of the corporation or LLC.
Unemployment benefits eligibility may be limited for close relatives of business owners.
Unemployment Insurance Benefits
Officers in a corporation that has not elected for optional coverage will not be eligible for Unemployment Insurance benefits.
For additional information on benefit eligibility requirements, reference Minnesota Law, §268.085 and Minnesota Law §268.085, Subd.9.