Unemployment insurance provides temporary partial wage replacement to workers who lose their jobs through no fault of their own. The benefits are funded by federal and state taxes paid by employers. We touch on the topic only lightly here and more thoroughly in the Business Taxes section.
Federal Unemployment Taxes
The FUTA (Federal Unemployment Tax Act) tax pays the administrative costs of the program at both the federal and state levels. Businesses file a federal UI (unemployment insurance) tax return once a year. It is generally due one month after the year ends. A FUTA tax return must be filed by any employer who meets any one of the following tests:
- The employer pays $1,500 or more in wages in any one calendar quarter for the reporting year
- The employer had one or more employees for some part of a day in any of 20 different weeks during the reporting year. For this test, all regular, temporary, and part-time employees are counted.
- The employer paid cash wages of $20,000 or more to farm workers during any calendar quarter for the reporting year
- The employer had 10 or more farm workers for some part of a day in each of 20 different weeks in the reporting year.
- The employer paid cash wages of $1,000 in any calendar quarter in the reporting year for household work done in a private home, local college club, or local chapter of a fraternity or sorority.
State Unemployment Insurance Taxes
All firms or organizations having services performed for them in Minnesota are subject to the provisions of the Minnesota Unemployment Insurance Law. Most are required to pay unemployment insurance taxes.
Whether or not a business is required to report wages and pay unemployment insurance taxes depends on the amount and type of employment, the amount of wages paid and other factors present in special situations.
All businesses that pay wages to employees performing covered services in Minnesota are required to register with the Minnesota Unemployment Insurance (UI) Program. Registration is done either online or by automated phone system, and should be completed as soon as possible after wages are paid to employees performing covered services in Minnesota, but not later than the due date of the first wage detail report.
Based on information the business provides, the state's UI program determines if the business is required to report the wages paid to its employees and pay state unemployment insurance taxes on those wages. If the business meets the reporting requirements, it will be assigned an unemployment insurance employer account number.
These businesses do not need to register for an employer account number:
- Sole proprietorships whose only employees are the spouse, parents, and/or minor children of the sole proprietor
- Corporations and LLCs whose only employees are owner/officers who directly or indirectly own 25 percent or more of the business and have not chosen to be covered under the Minnesota Unemployment Insurance Program
- Partnerships whose only workers are the partners of the partnership.
The law requires that each new employer pay tax at a new employer rate, unless the rate was acquired from a predecessor with an existing Minnesota unemployment insurance employer account, and the new employer is eligible to have an experience rate computed based on all or part of the predecessor's experience record.
Minnesota’s new employer unemployment insurance tax rate is a ratio of the total of all benefits paid to all Minnesota unemployment insurance benefit applicants to all taxable wages reported within the computation period. The new employer rate cannot be less than 1.00 percent plus the base tax rate, which can range from 0.10 percent to 0.50 percent depending on the balance in the Minnesota Unemployment Insurance Fund. The base rate is set at 0.10 percent for 2014 and 2016.
New employers in high experience rating industries are assigned a separate new employer rate. The tax rate for new employers in these industries is a ratio of the total of all benefits paid to all Minnesota unemployment insurance benefit applicants based on wages paid by employers in high experience rating industries to all taxable wages reported by employers in high experience rating industries within the computation period, plus the base tax rate.
High experience rating industries include (but are not limited to):
- Residential, commercial or industrial construction
- Sand, gravel, or limestone mining
- Manufacturing of concrete, concrete products or asphalt
- Road building, repair or resurfacing, including residential and commercial driveways and parking lots
Experience rating assigns a tax rate to employers who have paid wages for a sufficient period to rate their experience with unemployment. The fewer layoffs an employer’s workers experience, the lower the tax rate. By relating tax rates to unemployment history, experience rating results in employers paying tax at a rate that covers the cost of unemployment for which their business is responsible. Experience rates are computed to the nearest one-hundredth of a percent, to a maximum of 8.90 percent. To receive an experience rate, an employer must have paid covered wages for a specific period of time, generally two calendar years. The computation period used in the experience rate is 48 months (sixteen quarters), ending on June 30 of the year prior to the year for which the experience rate is computed.
Additional and Special Assessments
If the balance in the Minnesota UI Fund on March 31 falls below certain levels, an additional assessment takes effect for the following year. The additional assessment is set at zero percent of the tax due for 2015 and 2016. There is also a provision in the law for a special assessment to pay interest on federal loans which help to keep the Trust Fund solvent during periods of high unemployment. Currently there is no special assessment for federal loan interest in place for 2015 and 2016.
Personal Liability for Payment of Unemployment Insurance Tax
Company officers, directors, governors, members, partners, or owners may be held personally liable for any unpaid unemployment insurance taxes, interest and fees.