Minnesota Unemployment Insurance Tax – Paying Unemployment Benefits and MDEED Audits

This is the eleventh 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.  

When the MDEED receives an application from a former employee for unemployment benefits, the former employer(s) will receive a Determination of Benefit Account, which indicates:

  1. The applicant’s weekly and maximum benefit amounts;
  2. Wages used to establish the account; and,
  3. The maximum potential charges to the employer(s)’ experience rating.

The wages paid during the “base period” determine the former employee’s weekly and maximum amount of unemployment benefits. The “base period” is the first four of the last five completed calendar quarters prior to the effective date of the former employee’s application for benefits.

Except as provided in Minnesota Statutes Section §268.047, if the former employee had more than one employer during the base period, the benefits are charged to each employer using the same ratio the employers paid the former employee. For example, if one employer pays an employee $1,000 during the base period and another employer pays the same former employee $3,000 during the base period, the benefits charges will be allocated 25% and 75%, respectively.

An employer must keep records for at least eight years. The MDEED can audit a company at any reasonable time and as often as necessary. Employer’s should retain the following information:

  • For all employees and former employees:
    • First and last name;
    • Social Security number;
    • Location where services were performed;
    • Rate of pay;
    • Actual days and number of hours worked; and,
    • Gross earnings and the amount paid.
  •  Payroll records:
    • Payroll register;
    • Individual earnings records; and,
    • Time cards.
  • Federal Records:
    • Forms W-2 and W-3;
    • Forms 940 and 941;
    • Forms 1096 and 1099; and,
    • Federal income tax returns.
  • General Accounting:
    • Chart of accounts; and,
    • Detailed general ledger.