The New “Opt Out” Law: Under the recently passed House Bill 80, corporate officers in Idaho with an ownership interest in their company can now decline to participate in the state unemployment insurance program. The new “opt-out” law allows Idaho corporations to forego paying the unemployment insurance taxes on corporate officer wages.
The Impending Deadline: A corporation may take advantage of the exemption and forego paying unemployment taxes for the final two quarters of 2011, but only if it registers each elected exempt officer with the Department of Labor by December 15, 2011. The form must be signed and dated by each exempted officer. Registration Forms and instructions for filing are available by clicking here.
The Factors A Corporation Must Consider when Choosing Whether to Opt Out: Of course, opting out of the unemployment insurance program and its associated taxes means any corporate officer opting out will not be eligible for unemployment benefits. There are other factors corporations must consider when choosing whether to opt out. For instance, corporations who opt out are still liable for the federal unemployment insurance tax. Also, by opting out, corporate officers will lose the annual federal tax credit, which, assuming the officer makes at least $7,000.00 a year, means a federal tax liability increase from $42.00 to $434.00 a year.
On the other hand, corporations choosing to remain covered by the unemployment program will be subject to more stringent benefit collection rules. For example, officers may no longer collect benefits simply because they did not take a salary for a period of time. Rather, corporate officers seeking benefits must show they are no longer legally associated with the business through proof of sale of the corporation, dismissal by the board of directors, formal dissolution, a sworn affidavit that the corporation has been administratively dissolved or some other means. Also, if an officer who collects benefits returns to work for the same corporation within a year of qualifying for benefits, the officer will be required to repay all benefits received.
How We Can Help: The “opt out” or “stay in” options should be reviewed carefully before making a decision. We can assist in determining the net benefit to your company and develop a strategic compensation plan in alignment with officer/owner and company objectives.