This post is the fourth part in a series on Minnesota Paid Leave. Feel free to check out Parts 1, 2, and 3. The previous post focuses on the calculation of Paid Leave benefits for employees. This next post focuses on two inevitabilities: death deadlines and taxes.
Let’s start with the focus on deadlines. In particular, there are three deadlines to keep in mind:
- December 1, 2025. This was the deadline for employers to notify employees about Paid Leave and post the official workplace poster. Notices should be in the employee’s primary language and acknowledged in writing or electronically. The state has made this easy by providing templates. You can download the official poster and sample notice at each of the links.
- January 1, 2026. Employees can begin filing claims for benefits.
- April 30, 2026. The deadline for employers to make their first premium payments, covering wages paid in the first quarter of 2026.
Now to taxes. The law gives the Minnesota Department of Employment and Economic Development (DEED) the authority to set the tax rate based on its projection of the cost of funding the program. DEED settled on 0.88% of wages for 2026. Employers can split this cost with their employees up to 50% (0.44% with the 2026 rates). Employers can also take on more than 50% of the cost. The kicker is that the employee’s share of the tax cannot cause the employee to earn less than minimum wage. In other words, if the employee tax contribution would cause their net wages to dip below minimum wage after the tax, the employer needs to either take over more of the contribution for the tax, or they need to pay the employee more to compensate for the tax. Like other payroll taxes, whatever contribution the employer collects from the employee is withheld from the employee’s paycheck and paid to the state quarterly.
Small businesses qualify for a break on the tax. Employers qualify as small employers with 30 or fewer employees and an average employee wage below 150% of the state average wage (150% would be about $111,000 in annual wages based on current rates). Qualifying small employers pay 75% of the normal tax rate, which is 0.66% under current rates, and they can pass off the same employee contribution (0.44% for 2026) as other employers, so long as the minimum wage exception doesn’t kick in.
Finally, what are the income tax implications on the Paid Leave payroll tax and benefits for employee and employer? The employer’s contribution is generally deductible from federal income for the employer. Employees may generally deduct their contribution for federal taxes under the state income tax deduction (if they itemize). Finally, the Paid Leave benefits paid to the employee under the program are subject to state income tax. At least a portion of the same benefits are taxable for federal income tax, though the amount depends on the type of leave (family or medical leave) and the amount the employer contributed for the Paid Leave tax.
I have a few takeaways from today’s post:
- For employees, it is fair to expect that the program will have some impact on take home pay (up to $6.26 per week based on the average weekly wage of $1,423). It is also fair to expect that there will be income tax consequences if you go on leave and claim benefits under the program.
- For employers, it is important to make sure you have your posters posted, notices out to employees, and are prepared to have your payroll practices comply with the start of the program. If you are in doubt, loop in your payroll company, accountant, and attorney to make sure everyone is on the same page.
Thanks for reading!