Winter 2008The year 2008 is rapidly coming to a close and 2009 will bring new opportunities and challenges. Now is the time to review and take action on matters that can be completed before the new year begins.
One such example: If you are a corporate officer who provides services in Washington for a for-profit corporation, it is time to consider opting out of state unemployment insurance coverage.
A new Washington law changes the long-standing rule that for-profit corporate officers are generally exempt from unemployment insurance coverage. Beginning on January 1, 2009, for-profit corporate officers are automatically covered and taxed on wages for unemployment insurance coverage unless the corporate officer specifically requests to be exempted. Any request must be mailed by January 15, 2009, to be effective for the year 2009. Any request after that date will be effective on January 1 of the following year.
If corporate officers are covered for unemployment, it means that they must be reported as employees and pay state unemployment insurance taxes on their wages each quarter. It also means that they may be eligible for unemployment benefits if they lose their job.
If corporate officers are not covered for unemployment, it means that they would not be reported as employees or pay state unemployment taxes. It also means that they would not be eligible for unemployment benefits if they lose their job.
Now you may be thinking, "Of course I want corporate officers to be exempt from unemployment insurance coverage so I don't have to report them and pay the state unemployment tax." But such a hasty decision may, in fact, raise your total tax liability.
If corporate officers are exempt from state unemployment insurance coverage, thecorporation will lose its tax credit for corporate officers on Federal Unemployment Tax Act ("FUTA") taxes. This could mean that your total taxes (state taxes and FUTA) may go up or down depending on the salaries of individual corporate officers and your state tax rate.
Consult appropriate accounting professionals to determine if you will have an increased tax liability if you exempt corporate officers. Corporate officers still need to register with the Employment Security Department with name, Social Security number, and percentage of ownership, regardless whether they earn wages in Washington.
Private corporations (private corporations do not have a class of shares registered with the federal Securities and Exchange Commission) may exempt up to eight corporate officers who (1) are voluntarily elected or appointed under the articles of incorporation or bylaws of the corporation, (2) exercise substantial control of the daily management of the corporation, and (3) voluntarily agree to be exempted. In the alternative, a private corporation may exempt any number of officers if all of the officers being exempted are related by blood within the third degree of marriage (includes spouse, children, grandchildren, great grandchildren, brothers and sisters, nieces and nephews, parents, grandparents, great grandparents, aunts and uncles, legal adoptions, and step-relatives included).
Public corporations may exempt any number of corporate officers who (1) are voluntarily elected or appointed under the articles of incorporation or bylaws of the corporation, (2) exercise substantial control of the daily management of the corporation, (3) are shareholders, and (4) have primary responsibilities which do not include manual labor.
The Washington State Employment Security Department website has easy-to-understand instructions to assist corporate officers. The website also has an interactive process for producing a letter to request corporate officer exemption from unemployment insurance coverage. The website is http://www.esd.wa.gov/uitax/whatsnew/index.php.