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Small Businesses and the Minnesota State Unemployment Tax Refund

May 10, 2022 1:12:05 PM / by Bret Asmussen posted in small business taxes, small business payroll, how to

Have you heard about the state unemployment tax bill that was just passed in Minnesota? (That’s the Trust Fund Replenishment bill, to be clear.) 

If you don’t work with CSI and your payroll provider hasn’t reached out yet, you probably have a lot of questions. Heck, maybe you still have questions even if you already talked with your payroll provider. The process of requesting a refund - or choosing to keep the credit in your account - can cause issues if you’re not familiar with your payroll provider’s processes for early payments and impounding taxes. 

CSI Accounting & Payroll has become very familiar with unemployment taxes over the last 50+ years. We show our clients how to do things themselves as much as possible, whereas many national providers don’t even educate their clients on how to log into their unemployment accounts. 

Small business owners whom we’ve talked to about the Trust Fund Replenishment bill so far wanted to know:

  • What is this law change?
  • Why was this law changed?
  • How does this affect me?
  • What do I need to do now?

Laptop computer hand reaching out handing over money for the Minnesota State unemployment tax refund

What is The Trust Fund Replenishment Bill?

This bill is a reduction in Minnesota state unemployment tax rates. It’s a lowering of the base tax rate in conjunction with an elimination of assessments.

  • 2022 Base Tax Rate is reduced from 0.50% to 0.10%.
  • 2022 Additional Assessment is reduced from 14.00% to 0.00%.
  • 2022 Federal Interest Loan Assessment is reduced from 1.80% to 0.00%.

Why Was This Law Changed?

While we haven’t confirmed the reason for this bill being passed, we have an educated guess. Minnesota likely used its tax surplus to replenish the trust fund and pay back anything owed on federal unemployment loans.

As a business, you pay both a state and a federal unemployment tax. The federal tax is generally less than the state because unemployment benefits are rarely paid out by federal unemployment. Rather, it pools the money and loans it to states if they run out of unemployment funding. 

There are unusual circumstances when benefits are issued at the federal level, as we just saw during the COVID pandemic.

If a state borrows this federal unemployment money, it will need to collect enough money to pay it back with interest using assessments. An assessment in this case is essentially a temporary tax or additional fee.

How Does this Bill Affect Small Business Owners?

This bill being passed retroactively for 2022 means that if you’re a business that pays unemployment taxes, you can expect to get a tax credit. That means getting money back and reduced unemployment taxes for the rest of the year! 

Depending on a variety of factors, you can expect to see a wide range of unemployment money. Here are some examples of the amount of credit you can expect after your first quarter recalculations:

  • Experience Rate: 1% (the most common new employer industry rate)
  • Taxable wages: $100,000
  • Old rate tax due: $1,840
  • New rate tax due: $1,200 (a reduction of almost 35%)

The reduction percentage is even more drastic for established employers with low or a zero-experience rating:

  • Experience Rate: 0% (the minimum rate)
  • Taxable wages: $100,000
  • Old rate tax due: $680
  • New rate tax due: $200 (a reduction of 70%)

The difference in amounts will be the most for employers with high tax rates:

  • Experience Rate: 8.9% (the maximum rate)
  • Taxable wages: $100,000
  • Old rate tax due: $11,008
  • New rate tax due: $9,100 (a difference of almost $2,000)

What Do Small Business Owners Need to Do About This Law Change?

You have two options after the state calculates the difference in what you owe and adds the credit to your unemployment account. 

Regardless of which option you choose, you should talk to your payroll provider first to make sure you’re on the same page about their processes and which move is best for you.

Option #1

Do nothing. This doesn’t mean that nothing will happen, though. The credit in your unemployment portal can be used to offset what you owe for the next quarter. You can simply make lower payments throughout the quarter to fulfill your unemployment tax liability.

Have you ever found a $20 bill in your coat that you haven’t worn since last winter - and it pays for lunch? Offsetting the cost of something is a great feeling in itself. You don’t need to claim a refund on the tax credit if you don’t have a plan for the refund once you get it.

Option #2

You can request a refund for the credit amount in your unemployment portal. This is where you need to know if your payroll provider makes early payments because the balance may contain these payments as well as the credit. Be careful to only request the credit amount.

Payments are hard to follow because they’re shown in the quarter they were made, and that’s not always in the same quarter that the liabilities occurred. If your payroll provider makes early payments and you request a refund, you can accidentally claim money that was paid toward a future tax period.

If this isn’t caught and corrected on time, it will appear that you did not pay the full amount that you were liable to pay. You will then be subject to late payment penalties and interest being assessed. So just check in with them first!

If You Work With CSI Accounting & Payroll

CSI does make early payments to your unemployment tax account, meaning that you could claim too much of a refund if you tried to do it yourself. Instead, let your dedicated payroll specialist know if you would like a refund. We can get it done for you, but other payroll providers might not.

We make early payments because we don’t impound taxes. Impounding taxes is when a payroll company takes your money into their own bank account and then pays it out to where it's supposed to go when it's due. 

Instead of holding onto the unemployment taxes that are taken out of your payroll, we immediately pay it into your unemployment tax account. If it’s the end of a quarter, payments can show on a statement for a later tax period.

CSI payroll specialists are very familiar with the Minnesota unemployment tax portal for employers, and from the start, we make sure our clients have at least a basic understanding as well. However, when it comes to events like this, we let you know that all you need to do is contact us to make a change.

If you’re a client of CSI Accounting & Payroll, we will be contacting you to inform you of what steps we are taking to avoid future overpayments and the amount of credits you are due from the 1st quarter recalculations. Also, you should expect a refund check for that amount, which we will request on your behalf.

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Work With a Payroll Provider to Handle Your Unemployment Tax Credit

When you first heard of the Trust Fund Replenishment bill, you probably felt an initial excitement of knowing you could get a refund - immediately followed by confusion about how it affected you and what you needed to do next. 

Requesting a refund or even choosing to keep the credit in your account can cause issues if you don’t know if your payroll provider makes early payments or impounds taxes. At CSI, we keep it simple. We make early payments because we never impound your taxes, so all that you need to do is let us know which option you would like to do. We’ll handle the rest.

If you’re ready to have a discussion about if CSI Accounting & Payroll is a good fit for you, click the button below to schedule a free consultation.

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Bret Asmussen

Written by Bret Asmussen

Bret began working at CSI in 2007. Over the years, he worked his way up from an entry-level marketing position to his current role of manager of our payroll service. Bret is largely responsible for the growth of our payroll division over the last several years. His previous experience and knowledge in sales and management are exemplified in his success here. Bret has a college degree in Computer Networking, a skill that certainly comes in handy in an office environment. Bret is also a Certified Payroll Professional (CPP). Fun Fact: As an active duty member of the United States Marine Corps, he served in Operation Desert Shield and Desert Storm.

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