Minnesota Unemployment Tax Reduction Credit

On March 24, 2016, Governor Dayton signed into law a bill amending the state’s Unemployment Insurance law to provide for a reduction in unemployment taxes for certain employers.

During the week of June 20, 2016, letters were mailed to employers who are eligible for this reduction. The letter includes the amount of the employer’s tax credit.

The law is quite complicated because it uses a solvency measure for the UI Trust Fund — Average High Cost Multiple (AHCM) — that is not familiar to most people. It’s also complicated because the law is retroactive in its first year. Finally, there are federal laws that limit how a state may administer UI tax reductions.

Here is a simplified version of how this tax reduction works:

  • A reduction of $258,215,955.76 will be applied to taxes paid between July 1, 2016 and June 30, 2017.
  • To receive a portion of this reduction an employer:
    • Must have paid UI taxes or had a credit applied to UI taxes in the calendar year 2015.
    • Must pay UI taxes between July 1, 2016 and June 30, 2017.
    • Must not have been assigned an experience rating of 8.9 percent for the calendar year 2015.
  • The amount of tax reduction available to an eligible employer between July 1, 2016 and June 30, 2017 will be a dollar amount equal to the ratio of taxes they paid in 2015 to the total amount of taxes all eligible employers paid in 2015.
  • The amount will be posted to the employer’s unemployment insurance account as a “credit” on July 1, 2016.
  • When an employer submits their wage detail after July 1, 2016, the amount of taxes owed will automatically be calculated and the “credit” immediately applied – reducing the amount due.
  • Because federal law prohibits a refund of UI taxes under these circumstances, this credit can only be applied to taxes due and cannot be refunded as cash.
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