• Washington's New Corporate Officer Unemployment Insurance Law
  • December 12, 2008
  • Law Firms: Miller Nash LLP - Seattle Office ; Miller Nash LLP - Portland Office
  • A new Washington State law will change unemployment insurance coverage for corporate officers. Under the law, officers will be covered for unemployment insurance unless an employer specifically exempts them. This reverses the current law that exempts corporate officers from unemployment insurance unless the employer chooses to cover them.

    The new law will go into effect on January 1, 2009.

    What the New Law Changes

    Unemployment insurance protects workers who lose their jobs through no fault of their own. Employers fund the insurance program through payroll taxes paid on behalf of their employees. Before January 1, 2009, corporations did not have to report officers as employees, so there was no requirement to pay unemployment insurance taxes for them. Under the new law, however, corporations must report officers as employees, and if no exemption is requested, they must pay unemployment insurance taxes on the officers' wages each quarter.

    Exempting Officers

    The new law allows corporations to specifically exempt officers in order to avoid having to pay unemployment insurance taxes on their behalf. Corporations may exempt only some of their officers, and the number of officers that a corporation can exempt depends on what type of corporation it is:

    • Public corporations, which are corporations that have a class of shares registered with the federal Securities and Exchange Commission, may exempt as many officers as they wish.
    • Private corporations can exempt only eight officers.  But if all the exempted officers in a private corporation are related by blood to the third degree, or by marriage, then a private corporation may exempt an unlimited number of officers.
    • Nonprofit corporations that are 501(c)(3) tax-exempt cannot exempt their corporate officers from unemployment coverage.  If a nonprofit corporation is not tax-exempt and it pays wages to corporate officers, then it will be treated as a private corporation under the new law.

    Once a corporation exempts an officer from unemployment insurance coverage, the officer cannot be reinstated except under very limited conditions at set intervals every five years. Additionally, if a corporation exempts an officer from coverage, it will lose the tax credit the company receives for him or her under the Federal Unemployment Tax Act.

    What Corporations Need to Do

    If a corporation is willing to pay taxes to ensure that its officers are covered by unemployment insurance, it does not need to do anything. The new law will automatically require the corporation to pay taxes on officer wages each quarter.

    If a corporation wants to exempt its officers from unemployment insurance coverage, it must submit an exemption form. The form is located at www.tax.go2ui.com. Click on "Exempting corporate officers," choose whether the corporation is private or public, and follow the steps.  Keep in mind that once an officer is exempted, he or she cannot be reinstated until 2014 at the earliest.

    No matter what option a corporation chooses, it will still have to register corporate officers with the Washington State Employment Security Department.