Minnesota Unemployment Insurance Tax – Covered and Non-Covered Employment

This is the ninth post in the Employment Tax Law series. This series is dedicated to presenting individuals, sole proprietorships, and small to large businesses with a basic understanding of employment taxes, including the risks and responsibilities associated with those taxes.  

Covered employment is when an employee performs services for an employer in return for covered wages. Employers pay SUTA tax on “covered” wages. “Covered” wages include most payments to employees. Some exceptions include:

1. Employer payments for retirement, medical, and hospitalization expenses, and death, if the payments are made under a plan or system for employees generally;
2. Sick pay for periods of sickness or injury after the end of six calendar months after the calendar month in which the employee last worked;
3. Sick pay paid by a third party, such as an insurance company, or disability payments made under a workers’ compensation law;
4. Employer paid sickness or accident disability insurance if the employer provides coverage for employees generally;
5. Employer provided legal or dental services plans if the employer provides coverage for employees generally;
6. Allowances to employees for reimbursement of meal expenses when employees are required to perform work after regular hours; and,
7. Amounts paid specifically as advances or reimbursements for traveling or other bona fide ordinary and necessary business expenses.

Some employers are not required to pay SUTA tax on certain wages paid, called non-covered employment. Non-covered employment includes:

1. Services performed by a sole proprietor or member of a partnership or services performed for a sole proprietor by his or her parent, spouse, or child under the age of 18;
2. Services performed on or after January 1, 2005, for a corporation by an officer who owns 25 percent or more of the corporation;
3. Services performed for an LLC by a member who owns 25 percent or more of the LLC;
4. Services performed for a church, convention or association of churches, or any other supervised religious organization, controlled or principally supported by a church, if the employer is operated primarily for religious purposes.

An employer that is not required to pay for unemployment insurance coverage on may elect to voluntarily pay for coverage. This election remains in effect for a minimum of two years.