If your small business has employees working in Minnesota, you’ll need to pay Minnesota unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Minnesota, state UI tax is just one of several taxes that employers must pay.
Different states have different rules and rates for UI taxes. Here are the basic rules for Minnesota’s UI tax.
As a Minnesota employer, your small business must register with the Minnesota Department of Revenue (DOR) for a taxpayer ID number. This is a necessary first step before registering with the state more specifically for UI tax purposes. You can register with the DOR online, on paper, or by phone. To register online, go the e-Services section of the DOR website. To register on paper, use Form ABR, Application for Business Registration, which you can download, along with instructions, from the businesses section of the DOR website. You can submit Form ABR by regular mail or fax. For the latest phone registration information, check the DOR website. There is no fee to register your business with DOR.
Once you have your tax ID number from the DOR, your small business must establish a Minnesota UI tax account with the Minnesota Department of Employment and Economic Development (DEED). More specifically, you must register with Minnesota Unemployment Insurance Program, which is administered by DEED and often is referred to as “Unemployment Insurance Minnesota” (UIMN). You should register as soon as possible after your small business first pays wages for employment covered by the UI program and, in any case, prior to the due date of your first required quarterly wage report. However, do not register until covered wages have actually been paid.
You can register for an account with UIMN either online or by phone. Once registered, you’ll be assigned a Minnesota UI employer account number. To register online:
For the latest phone registration information, check the UIMN website. There is no fee to register your business with UIMN.
Note: To establish your Minnesota UI tax account, you’ll need a federal employer identification number (EIN). You can apply for an EIN at IRS.gov. Generally, if you apply online, you will receive your EIN immediately.
In Minnesota, most for-profit employers are liable for state UI taxes. Unlike most other states and the federal government, Minnesota does not have a threshold requirement, such as paying a minimum amount of wages in a calendar year, or having at least one employee for a minimum number of weeks during a calendar year, before UI taxes are required. However, like other states and the federal government, different rules, not covered here, apply to agricultural (farm) workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.
One piece of good news is that state UI tax payments generally can be credited against your federal unemployment taxes.
UI tax is paid on each employee’s wages up to a maximum annual amount. In Minnesota during the last decade, that amount, known as the taxable wage base, has increased by $1,000 every one or two years. In recent years it has reached about $30,000. Since the rate regularly changes, you should check the UIMN website for the latest information.
The state UI tax rate for new employers, sometimes known as the standard beginning tax rate, also can change from one year to the next. In recent years, it generally has been somewhere around 1.75%. New employers in so-called high experience rating industries are subject to a much higher starting rate, recently around 9%. High experience rating industries are businesses that historically have a high amount of unemployment, such as those engaged in residential, commercial, or industrial construction. Established employers are subject to a lower or higher rate than new employers depending on an “experience rating.” This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits.
In Minnesota, UI tax reports and payments are due within one month after the end of each calendar quarter. In other words, reports and payments are due by the following dates:
If any of the latter dates falls on a weekend or state government holiday, the due date is the next state government business day.
You can file your Wage Detail Reports reports online or by an automated phone system. To file online, login to your account at UIMN.org and, on My Home Page, click Submit Wage Detail.
Large employers (50 or more employees) must make payments electronically. Smaller employers can pay electronically or by paper check. To make payments electronically, you must use the the Minnesota Employer Self-Service System by going to UIMN.org. If are eligible and choose to pay by check, you will need to print a payment voucher to submit with your check. You can download a voucher from your account at UIMN.org.
Quarterly wage detail reports must be submitted until you terminate your UI tax account, including through the end of the calendar quarter in which your account is to be terminated. If you have a quarter with no covered wages paid and you have an active employer account, you must submit a Zero Wage Report. You will be subject to a penalty if you fail to file.
You are required to post a notice (poster) regarding state unemployment claims in a prominent place for all employees. The poster states that employees have a right to apply for UI benefits and provides basic contact UIMN information for that purpose. You can download a notice from the Workplace Posters section of the UIMN website that meets all legal requirements.
Employers who use independent contractors rather than hiring employees are not subject to the UI tax. However, it’s important that you do not misclassify an employee as an independent contractor. If you do misclassify an employee, you could be subject to penalties or fines.
You may decide that it’s easiest to hand over responsibility for payroll, including UI taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.
This article touches on only the most basic elements of Minnesota UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and UIMN websites for the latest information. UIMN also has a helpful Unemployment Insurance (UI) Employer Handbook that is published online on the UIMN website. In addition to state UI tax, employers have other responsibilities not covered in this article such as federal UI tax, state and federal withholding taxes, and required reporting of new hires. You can get more information about other small business tax issues in other articles here on Nolo.