The rules changed for unemployment insurance as of January 1, 2009. Before the change, corporate officers, LLC owners, partners, and sole proprietors were automatically exempted from state unemployment insurance coverage in Washington―unless the business specifically elected to cover them.
Beginning in 2009, for-profit corporations must specifically elect to exclude their corporate officers from unemployment insurance coverage by submitting an exemption form for each officer. If corporations do nothing, their officers will be covered. (Not affected by the rule change are sole proprietorships, partnerships, limited liability companies, and for-profit corporations with no employees other than corporate officers.)
Corporations can choose to cover some corporate officers while excluding others. However, once a corporate officer is excluded, that officer can only be reinstated under a very limited set of circumstances.
A change in the treatment of corporate officers for unemployment insurance purposes may affect your corporation’s state and federal unemployment insurance taxes. For example, if you cover corporate officers, their salaries are included in in-state taxable wages when calculating state unemployment taxes. For federal purposes, if you exempt your corporate officers, you cannot claim the federal tax credit for them on FUTA taxes.
Finally, note that the new unemployment insurance rules do not change the requirement that corporations register their corporate officers with the Employment Security Department.
Click here to review the Washington State Employment Security Department’s overview of the new law governing unemployment insurance coverage for corporate officers. The web page includes a link to the exemption form required to exclude corporate officers from coverage.