The Minnesota state legislature has been quarreling over an unemployment insurance tax cut for most of the current session. They finally reached a deal that was then signed by Gov. Mark Dayton on Thursday for a total of $258 million in tax breaks.
The tax cuts are most likely only temporary. The passed legislation ties the state’s unemployment insurance taxes to the condition of its unemployment insurance trust fund – which has only recently recovered from the recession. If the unemployment insurance trust fund falls below federally recommended “safe” levels (for Minnesota that is about $1.6 billion), then higher tax rates kick in to return the fund to solvency. The Minnesota fund has only recently become solvent and a small slip in the state’s economy – one heavily dependent on mining – could drop its levels below a “healthy” balance. This tax policy is not considered wise by some as it would most likely trigger a tax hike during a recession.
The now signed legislation includes a one-off $258 million rebate to be split among employers this year. Most Minnesota employers (excluded are seasonal businesses like road construction contractors and landscapers) are eligible for the one-time tax credit payout unless they have a history of layoffs.
According to government sources the unemployment insurance trust fund balance is forecast to have $1.8 billion at the end of 2016. That would give the fund a 10 percent difference in relation to the $1.6 billion “safe” balance suggested by the U.S Labor Department — enough to trigger a credit for employers next year.
Nonprofits Have Other Options
The above applies to all Minnesota employers except 501(c)(3) organizations. 501(c)(3)s do not have to pay state unemployment insurance taxes – high or low. Many nonprofits could save as much as 30 percent more on their unemployment cost by opting out of the unemployment insurance tax system – an advantage provided to them by the IRS. Doing so affords nonprofits unique avenues that allow them to strategically handle unemployment claims administration and unemployment insurance taxes in ways that for-profits can only dream about.
Contact us today for more information concerning your nonprofit unemployment insurance tax advantages.