Do I have to report my wages and pay unemployment insurance taxes if I have a family-owned corporation?

A family-owned corporation employing no more than two (2) family members, who each own at least fifty (50) percent of the shares issued by the corporation, may apply for exclusion from coverage. An application must be filed and qualifying requirements met. To elect this exclusion option, Form UC-336, “Election by Family-Owned Corporation to be Excluded from Coverage Under Section 383-7(20), Hawaii Revised Statutes should be submitted online at https://huiclaims3.hawaii.gov. This exclusion, if approved, shall be effective the first day of the calendar quarter in which the application and all supporting documents requested by the department are filed. A corporation having one employee who owns one hundred percent (100%) of the shares is not a “family-owned corporation” and therefore ineligible for this exclusion.

Employers should consider the following before for the exclusion:

• The non-revocable exclusion is for a minimum of 5 years unless the conditions of the exclusion change prior to the 5 years (a non-owner employee is hired).
• Wages paid to the two employees by this corporation during the period of the election cannot be used to establish a claim for unemployment benefits.
• Federal Unemployment Taxes (FUTA) tax liability as an excluded corporation may be greater than the combined State UI and FUTA tax liability of a covered corporation. An excluded corporation no longer qualifies for a 5.4% FUTA tax credit afforded to employers covered under the Hawaii Employment Security Law. As a result, the excluded corporation’s FUTA rate will be 6.0% as opposed to the covered corporate rate of .8%, the first $7,000 for each of the 2 employees.