Frequently asked questions about corporate officer exemption

Beginning January 1, 2009, corporate officers who provide services in Washington are covered for unemployment insurance unless the employer specifically exempts them. There are strict time limits on when the employer must act to exempt corporate officers. See Q4. Under the old law, corporate officers were exempt from unemployment insurance unless the employer elected to cover them.

The new law only applies to corporations. See Q15.

If your corporate officers are covered for unemployment, you must report them as employees and pay state unemployment insurance taxes on their wages each quarter. They may be eligible for unemployment benefits if they lose their jobs. See Q32 for limitations on corporate officer unemployment benefits.

If you exempt your officers from coverage, you would not be required to report them or pay state unemployment insurance taxes on them and they would not be eligible for benefits if they lose their jobs. However, you would have to pay full federal unemployment insurance taxes (FUTA) on them. See Q11.

Corporate officers are no longer exempt unless the corporation filed a request for exemption and the Employment Security Department approved it. Under the new law, corporations with employees must request to exempt their officers or they will be covered. The deadline for 2009 for a registered corporation to exempt its corporate officers was January 15, 2009.

If you did not submit a request for exemption and receive approval of the exemption, your corporate officers are no longer exempt from unemployment coverage in 2009. You must report them as employees and pay state unemployment insurance taxes on their wages each quarter.

The deadline to request an exemption was January 15, 2009, so it is too late for corporations already registered with Employment Security to file for exemptions in 2009. You may file a request for exemption at any time, but it will not take effect for registered corporations until the following January 1. For already registered corporations, you must submit an exemption request by January 15 for it to take effect that year. For corporations that are newly registering, see Q8.

If you want to exempt your corporate officers, you must submit an exemption form for each officer. Go to www.tax.go2ui.com and click on “Exempting corporate officers” to begin filling out an exemption form. We highly recommend using the Web site to make sure you get the proper form. However, you may also obtain a paper form by contacting your district tax office.

Information on the exemption form must match corporate registration information on file in order to process your request for exemption. To update corporate registration information, submit the Update Ownership Information form (5208C-2). See also Q18.

Once we approve your request to exempt a corporate officer, the exemption will stay in effect while the officer remains eligible for exemption. You will not have to reapply next year. However, you are required to notify us if the corporate officer is no longer eligible for exemption. See Q28.

Please call your district tax office.

No. If there are no employees other than corporate officers and all personal services are performed by bona fide corporate officers, the corporation is not considered an employer under state unemployment insurance law (RCW 50.04.080(3)). Because it is not an employer, corporate officers will continue to be uncovered, so the corporation does not need to exempt them. A corporation with no employees could, however, choose to cover its corporate officers by applying for voluntary election of coverage.

Corporations doing business in Washington must complete a state Master Business Application. This applies if you are a newly-formed corporation or a corporation newly doing business in Washington. If you have employees or plan to employ persons within 90 days, you must register with the Employment Security Department as part of the Master Business Application process. For-profit corporations must then file an Update Ownership Informationform (5208C-2) to provide additional information about corporate officers, including the percentage of stock (shares) owned. New for-profit corporations that wish to exempt some or all of their corporate officers should submit an exemption form for each officer. Go to http://www.tax.go2ui.com/ and click on “Exempting corporate officers” to begin filling out an exemption form. Information on the exemption form must match corporate registration information on file in order to process the request for exemption. See Q8 for the deadlines for new corporations to submit exemption requests.

New corporations must submit corporate officer exemption requests within 30 days of registering their business with Employment Security if the exemption is to take effect as of the registration date. Requests for exemption that are postmarked or faxed after 30 days from the registration date will not start until January 1 of the following year.

You must include covered corporate officers and their in-state taxable wages in the quarterly reports that you file for unemployment insurance. You would pay state unemployment taxes on your covered corporate officers each quarter just as you do for all other corporate employees.

Yes. If you exempt your officers from state coverage, you will lose your tax credit for them on FUTA taxes. 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.

It is difficult to give a general rule for whether or not your total state and federal unemployment taxes will go up or down. Some of the factors are the salary you pay the corporate officer, your corporation’s state tax rate, and the total difference in wages among all employees (excluding corporate officers) between the federal taxable wage base (currently $7,000) and the state taxable wage base ($35,700 in 2009).

You may wish to consult your bookkeeper or accountant about the impact of exempting corporate officers on your state and federal unemployment taxes. We cannot answer questions about what will happen to your specific tax rates for state or federal taxes.

If you requested exemption and we notified you that we approved the exemption, report the total number of exempted corporate officers and their combined wages or earnings on the summary tax pages, but do not include their names, hours, or wages on the quarterly Wage Detail report.

If you are using a paper Quarterly Tax Report (form 5208A) or UIFastTax, report the number of exempt officers on line 10 and the amount of their wages on line 9. If you are filing your quarterly reports using Employer Account Management Services (EAMS) or UIWebTax, file these under the Exempt Earnings screen.

If some or all of your corporate officers have not been approved for exemption from coverage and you have employees, you must report these corporate officers quarterly in the same way you report your employees. This also applies if you do not have other employees but have voluntarily covered your corporate officers.

Include the names, Social Security numbers, hours, and wages of each non-exempt corporate officer on the quarterly Wage Detail report (e.g., paper form 5208B) and include their total wages when you report total gross wages for the corporation.

If you do not have employees and have not requested voluntary coverage of your corporate officers, you do not have to file. See Q6.

No. The new law only applies to corporate officers in corporations. It does not apply to sole proprietors, partnerships, or limited liability companies (LLCs).

The new law applies to corporate officers; it does not apply to board members of corporations unless they are also corporate officers. Corporate officers include the people authorized as such in your corporation’s bylaws.

In general, no. In fact, federal law provides that nonprofits that are exempt under section 501(c)(3) of the federal tax code and those that reimburse costs instead of paying taxes cannot exempt their corporate officers from unemployment coverage.

NOTE: Nonprofit corporations do not need to register or report volunteer officers. Therefore, there is no need to exempt them. This does not change under the new law.

There may be uncommon circumstances in which a corporate officer of a nonprofit corporation that is not a tax-exempt 501(c)(3) organization earns wages from the corporation and seeks exemption. In those circumstances, we will treat the exemption for the nonprofit corporation the same as for a private corporation.

No. A separate law requires corporations to register your corporate officers with the Employment Security Department. This still applies regardless of whether your corporate officers are covered or exempt under the new law. See Questions & Answers on corporate officer registration. Registration information includes names, Social Security numbers, and percentage of ownership for all corporate officers, regardless whether they earn wages in Washington. We will not process requests for exemption of corporate officers unless the information matches corporate registration information. To update corporate registration information, you may also submit the Update Ownership Information form (5208C-2).

Yes. Nothing in the law restricts a corporation from choosing to exempt some officers and not others. However, once you choose to exempt an officer, the corporation cannot elect to reinstate the officer except under very limited conditions. See Q27.

It depends on whether your corporation is private or public.

Private corporations* may exempt	Public corporations* may exempt
Up to eight corporate officers who: Are voluntarily elected or appointed under the articles of incorporation or bylaws of the corporation; and Exercise substantial control of the daily management of the corporation; and Voluntarily agree to be exempted. OR Any number of corporate officers if all of the officers being exempted are related by blood within the third degree or by marriage**.	Any number of corporate officers who: Are voluntarily elected or appointed under the articles of incorporation or bylaws of the corporation; Exercise substantial control of the daily management of the corporation; Are shareholders; and Have primary responsibilities which do not include manual labor.

* Public corporations have a class of shares registered with the federal Securities and Exchange Commission. Private corporations do not.

** Includes spouse, children, grandchildren, great grandchildren, brothers and sisters, nephews and nieces, parents, grandparents, great grandparents, aunts and uncles. Legal adoptions or step-relatives are included.

If a private corporation exempts eight or more related corporate officers, then it may not exempt any additional non-relatives.

We will notify you whether or not we have approved your request. If you submitted a request and did not receive a response e-mail status@esd.wa.gov or call 360-902-9360.

We will notify you if we disapprove your request for exemption or reinstatement. If you disagree, you may appeal that decision by filing an appeal in writing within 30 days. Mail your appeal to: Tax Appeals, Employment Security Dept., P.O. Box 9046, Olympia WA 98507-9046, or to your local district tax office. Your appeal should identify your name, your business, address, telephone number, Employment Security reference number, the decision/document that you are appealing, and the reason you disagree with the decision.

Under the new law, if you request an exemption when you first register as an employer, it takes effect immediately. If you request an exemption after your business is registered, you must send your request to us by January 15 for the exemption to be effective for that year.

If postmarked or faxed after January 15, the exemption will not take effect until the following year. This also applies to officers elected or appointed after January 15. See Q9. The law provides that an exemption can only take effect on January 1 and does not allow retroactive application after January 15.

We will not give a refund or credit for periods before the effective date of the exemption.

The law requires signatures of both the corporate officer being exempted and another corporate officer verifying the decision for exemption. The easiest way to achieve this is with paper copies printed from the Web site. The Web site is designed to help guide you through the process of selecting the proper form for your corporation. To begin the process, go to www.tax.go2ui.com and click on Exempting corporate officers.

An exemption ends immediately for private and public company corporate officers who no longer qualify for the exemption. Once the exemption ends, you must include the non-exempt officer in the quarterly wage detail and notify us. See Q28.

For example, in a private corporation, the officer may no longer be a bona fide elected or appointed corporate officer. However, officers of private companies must have a reason other than canceling their voluntary agreement to end their exemption. The exemption does not end solely because an officer of a private company withdraws his or her voluntary agreement to be exempted. For another example, in a public corporation, the officer may no longer be a bona fide elected or appointed corporate officer or may no longer be a shareholder of the public corporation.

An exemption for an officer of a private or public corporation also ends at five year intervals if you send us written notice by January 15 requesting reinstatement. Otherwise, an approved exemption will stay in effect while the officer remains eligible. Requested reinstatement is only effective the first day of the calendar year at set intervals of five years beginning January 1, 2014, then January 1, 2019, and every five years after that.

You must submit any changes in corporate officers on the Update Ownership Information form (5208C-2) with your quarterly tax reports. You must also include any corporate officers who are no longer exempt in the quarterly wage detail when you report.

Your company is responsible for any taxes, penalties and interest due if coverage is reinstated, regardless of whether you gave notice about the termination of the exemption.

We will not reinstate coverage at the five-year interval for reinstatement for a corporate officer if your company:

• Committed tax-related fraud within the last five years;
• Is delinquent in paying its taxes; or
• Is currently assigned a delinquent tax rate.

No special form for reinstatement at the five-year interval is needed at this time.

Send us a letter that includes:

• Name, address, and telephone number of your corporation;
• Employment Security account number;
• Name(s) and Social Security numbers of corporate officer(s) to be reinstated.

Yes. There are special rules which apply only when a corporate officer owns 10 percent or more of the corporation or is a family member (related by blood or marriage as parent, stepparent, grandparent, spouse, child, brother, sister, stepchild, adopted child, or grandchild) of another corporate officer who owns 10 percent or more of the corporation. In those circumstances, the corporate officer may not be eligible for unemployment benefits unless the officer resigns or is removed as corporate officer or if the corporation dissolves. See WAC 192-310-190 for more details.

No. The same rules apply for corporate officers as for other workers in determining where they work, their “situs of service.” Typically, if they do not work in Washington, corporate officers would not have to be reported for unemployment in Washington. Therefore, they would not have to be exempted from coverage.