Corporate officers can now opt out of paying for state unemployment insurance coverage under HB 80 – a law passed by the Legislature and signed by Gov. C.L. "Butch" Otter during the 2011 legislative session.

The new law also better defines when corporate officers who choose to continue paying for coverage are unemployed and eligible to receive benefits.

Opting Out of Paying Unemployment Insurance Taxes

Corporate officers who wish to “opt out” of paying for unemployment insurance coverage on their wages must register each qualifying corporate officer they elect to exempt with the Idaho Department of Labor on the designated department form. This  form must be signed and dated by the corporate officer who will be exempted from coverage.

Registration forms for opting out of coverage must be received and approved by the department prior to December 15, 2011 to become effective January 1, 2012.  For any registration forms received after December 15, 2011, opt out coverage will become effective beginning January 1, 2013.  Coverage exemptions are not retroactive and must remain in effect for two calendar years following the election to opt out.

This exemption applies to state unemployment insurance tax coverage only. Corporate officers opting out of state unemployment benefit coverage are still subject to Federal Unemployment Tax Act taxes and reporting requirements. Currently the federal tax is 6.2 percent on the first $7,000 of each corporate officer’s wages.

Corporations or corporate officers requesting the exemption shall not be eligible for a refund or credit for taxes paid for corporate officers before the effective date of the exemption.

Questions on the corporate officer exemption from state unemployment insurance taxes should be directed your tax representative. 

Remaining Eligible for Receiving Unemployment Insurance

In cases where the corporate officer wishes to continue to pay for state unemployment insurance coverage, the new law defines when the officer is unemployed and eligible to receive benefits.

Simply failing to take a salary from the corporation for some period of time will no longer constitute being “unemployed” in cases involving corporate officers with an ownership interest or whose family member has an ownership interest in the corporation.

The new law clarifies that corporate officers are “unemployed” when they are not working for the corporation due to circumstances beyond their control during the entire benefit year that begins when they file for unemployment insurance benefits. If a corporate officer returns to work for the same corporation before the end of that 52-week benefit year, any unemployment insurance benefits received during the benefit year must be repaid.

Questions on corporate officer eligibility for unemployment insurance should be directed to your local office.