Federal Unemployment Tax (FUTA) • Employers generally pay 6.0 percent on the first $7,000 of wages for each employee. • A credit of up to 5.4 percent for state unemployment tax reduces the net FUTA tax to 0.6 percent. • This credit is reduced when Minnesota’s unemployment fund borrows from the federal government and hasn’t repaid the loan. • Wages paid to a spouse or child under 21 working for a sole proprietorship are exempt from FUTA, with other exceptions applying. Note: State unemployment tax law changes can affect your FUTA liabilities. Timely payment of Minnesota unemployment tax helps keep FUTA taxes low. Minnesota Unemployment Tax • Minnesota’s state unemployment tax rates vary based on business experience and industry. • Wages paid by sole proprietors to close family members under 18 (parent, spouse, child) are exempt. • Wages paid to corporate officers or LLC members owning 25 percent or more also may be exempt. • Other specific exceptions may apply. Workers’ Compensation Insurance in Minnesota • Most employers must have workers’ compensation insurance for their employees. • Coverage provides wage replacement and medical/vocational benefits for employees injured on the job. • Sole proprietors and partners are generally not required to have this coverage for themselves or close relatives working in the business. • Employers can choose to provide coverage for family members, but it's not mandatory. • Certain closely held corporations may opt to cover executive officers owning at least 25 percent of stock. • New 2026 law : For construction/improvement businesses with zero employees, more documentation and notification steps are required. See MN Dept. of Labor & Industry Zero Estimated Exposure and Wrap-up Policies. Penalties and Requirements • Employers who fail to provide required workers’ compensation coverage may face significant penalties, including fines and orders to stop working. • Insurance rates depend on the type of work and employer’s claims history. • Minnesota offers options for purchasing insurance through private carriers, self-insurance plans, or assigned-risk pools, especially for businesses hard to insure.
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