Unemployment Coverage Now Optional—and Stricter—for Idaho Corporate Officers
Corporate officers in Idaho can now decline to participate in the state unemployment insurance program and eschew its associated tax, while those who elect to continue coverage will be subject to stricter benefit collection rules. These changes became law during the 2011 legislative session.
The new law addresses two concerns. Many corporate officers have protested the tax on their salaries, arguing that they would never collect unemployment benefits from their own companies and that their roles assume the risk of loss. Others have used the benefits to compensate themselves in off-season periods, collectively drawing funds well in excess of state corporate officers’ total unemployment insurance tax contributions.
“The Legislature has moved to strike a greater balance,” says Connie Murphy, tax principal with LarsonAllen. “The opt-out provision and the tighter benefit rules seem to be in spirit of true unemployment protection, but those who have relied on the coverage in the past may not be eligible for future benefits.”
Corporate officers must register with DOL to opt out of coverage
To voluntarily forego unemployment insurance coverage on their officers (those who have a share in the company) and discontinue the tax on their wages, corporations must register each elected exempt individual with the Idaho Department of Labor (DOL). The exempted officer must sign and date the appropriate form to opt out of coverage.
Registration forms must be received and approved by the DOL prior to December 15, 2011, to become effective back to July 1, 2011. If forms are received after December 15, 2011, exemptions won’t be effective until January 1, 2012. Coverage exemptions are not retroactive and must remain in effect for two calendar years following the election.
Corporations should note that this law is relevant to Idaho state unemployment insurance tax coverage only. Federal unemployment taxes and reporting requirements still apply.
“It is important for the officers of our corporate clients to understand this potential moneysaving opportunity,” says Murphy. “You should determine how this affects your company in time to meet the application approval deadline.”
Corporations or their officers requesting the exemption will be ineligible for a refund or credit for taxes paid for corporate officers before the exemption was effective.
More stringent benefit collection rules for officers receiving unemployment insurance
For corporate officers choosing to remain in the state unemployment insurance program and pay the tax on their wages, the new law defines what actually constitutes unemployment and when an officer is eligible to receive benefits.
Officers and their family members with an ownership interest in a corporation can no longer collect benefits for simply failing to take a salary for some period of time.
Unemployed corporate officers are now clarified as those not working for the corporation for one full year because of circumstances beyond their control (beginning when they file for unemployment insurance benefits). If an officer returns to work for the same company before the end of that 52-week benefit period, any unemployment insurance benefits received during the year must be repaid.
How we can help
Currently, corporate officers pay Idaho unemployment taxes on the first $33,300 of annual wages. The actual rate varies for each employer based on their experience rating. We can calculate the benefit for your company and help you weigh your options, as well as assist with opt-out registration. For officers who have depended on unemployment insurance to cover salary losses in off-season periods, we can help design compensation plans to manage income all year long.
Connie Murphy, Tax Principal
cmurphy@larsonallen.com or 208-387-6400
View our tax principals.