Minnesota Corporation Owners Can Opt Out Of State Unemployment Insurance

Effective January 1, 2005, Minnesota corporation officers who own 25% or more of their company's stock can elect not to be covered by Minnesota state unemployment insurance (SUI). This statute change recognizes that corporate owner-officers are more business owners than employees.

(PRWEB) October 28, 2004 -- Effective January 1, 2005, Minnesota corporation officers who own 25% or more of their company's stock can elect not to be covered by Minnesota state unemployment insurance (SUI).

"Unemployment insurance has always been a major hassle for small business owners who operate S corporations," says Peter Hupalo, author of "How To Start And Run Your Own Corporation: S-Corporations For Small Business Owners."

Small business owners who operate their own corporations are technically considered employees of the corporation and, because of this, are often subject to paying state unemployment insurance tax on their own salaries. Any corporate officer, including the president of a one-person S corporation, is considered an employee.

"The problem is that small business owners pay into the unemployment system, but seldom are in a position to collect unemployment. This makes it sort of an unfair tax," says Hupalo.

Unemployment insurance is a complex and state-specific area of law. One Wisconsin case decided that a one-armed man who lost the use of his other arm was ineligible for unemployment, because an individual has to be capable of working to collect unemployment. Another case decided that a business owner who closed his failing business was ineligible for unemployment, because by closing his business, he essentially quit his job voluntarily.

Minnesota corporate owners can fill out form DEED-591 available from The Minnesota Department of Employment and Economic Development to elect coverage or non-coverage under state unemployment insurance. The form also applies to the owners of limited liability companies (LLCs).

"I hope the Federal government will eventually allow an entrepreneur with a small S corporation to opt out of Federal unemployment tax (FUTA). Basically thats a tax of $434 with no benefit to the owner of a small business. The owner essentially can't collect it," commented Hupalo.

Hupalo says that because FUTA only applies to the first $7,000 in wages there isn't a strong lobbying effort to exclude small corporation officers from FUTA.

###