Minnesota PFML Payroll Tax Setup Guide
Complete guide to implementing, calculating, and managing the 0.88% Minnesota PFML payroll tax for your business.
PFML Premium Rate Breakdown
No Wage Cap
Unlike Social Security tax, there is no annual wage cap for PFML premiums. The 0.88% rate applies to all covered wages throughout the entire year, no matter how much an employee earns.
Premium Split Options
Minnesota law establishes the minimum employer contribution at 0.50%. Employers can choose to:
- Standard Split (Most Common): Employer pays 0.50%, employee pays 0.38%
- Employer-Paid Premium: Employer voluntarily pays the full 0.88% (employee portion becomes taxable income)
What Wages Are Subject to PFML Tax?
✓ Covered Wages (Subject to PFML Tax)
- Regular hourly wages and salaries
- Overtime pay
- Commissions and bonuses
- Tips and gratuities
- Vacation pay and PTO payouts
- Sick pay (employer-paid)
- Severance pay
- Taxable fringe benefits
- Stock option income (when taxable)
- Retroactive pay increases
✗ Excluded Wages (Not Subject to PFML Tax)
- Independent contractor payments (1099)
- Employer contributions to retirement plans
- Employer-paid health insurance premiums
- Workers' compensation benefits
- Unemployment insurance benefits
- Disability insurance payments (third-party)
- Reimbursements for business expenses
- Moving expense reimbursements
- Non-taxable fringe benefits
General Rule: If compensation is subject to federal income tax withholding (appears in Box 1 of Form W-2), it's generally subject to PFML tax. However, consult the state's specific guidance for exceptions.
How to Calculate PFML Premiums
Basic Formula
Real-World Calculation Examples
Example 1: Hourly Employee
Scenario: Employee earns $20/hour, works 40 hours/week
Bi-weekly gross pay: $20 × 80 hours = $1,600
Calculations:
Employee portion: $1,600 × 0.0038 = $6.08 (withheld from paycheck)
Employer portion: $1,600 × 0.0050 = $8.00 (paid by employer)
Total PFML premium: $14.08 per pay period
Annual cost: ~$366.08 (employee) + ~$208 (employer) = ~$574.08 total
Example 2: Salaried Employee
Scenario: Employee has annual salary of $75,000
Monthly gross pay: $75,000 ÷ 12 = $6,250
Calculations:
Employee portion: $6,250 × 0.0038 = $23.75 (withheld from paycheck)
Employer portion: $6,250 × 0.0050 = $31.25 (paid by employer)
Total PFML premium: $55.00 per month
Annual cost: $285 (employee) + $375 (employer) = $660 total
Example 3: High Earner (No Wage Cap)
Scenario: Executive with annual salary of $250,000
Monthly gross pay: $250,000 ÷ 12 = $20,833.33
Calculations:
Employee portion: $20,833.33 × 0.0038 = $79.17 (withheld from paycheck)
Employer portion: $20,833.33 × 0.0050 = $104.17 (paid by employer)
Total PFML premium: $183.34 per month
Annual cost: $950 (employee) + $1,250 (employer) = $2,200 total
Note: Tax applies to all $250,000 (no wage cap like Social Security)
Example 4: Employee with Bonus
Scenario: Employee earns $5,000 monthly salary + $10,000 year-end bonus
Regular month: $5,000 gross pay
Bonus month: $5,000 salary + $10,000 bonus = $15,000 total
Regular Month Calculations:
Employee portion: $5,000 × 0.0038 = $19.00
Employer portion: $5,000 × 0.0050 = $25.00
Bonus Month Calculations:
Employee portion: $15,000 × 0.0038 = $57.00
Employer portion: $15,000 × 0.0050 = $75.00
Bonuses are fully subject to PFML tax in the pay period they're paid
Step-by-Step Payroll System Setup
Step 1: Register Your Business
Before collecting PFML premiums, register with the Minnesota Department of Employment and Economic Development (DEED).
- Complete the PFML employer registration form online
- Receive your PFML employer account number
- Save your account credentials for quarterly reporting
Step 2: Configure Payroll Deduction Codes
Set up new deduction codes in your payroll system:
Recommended Code Setup:
- Deduction Code: "MNPFML" or "PFML-EE"
- Description: "MN Paid Family Leave - Employee"
- Rate: 0.38% or 0.0038
- Tax Type: After-tax deduction (post federal/state withholding)
- Applies to: All covered wages
- Employee visible: Yes (should appear on pay stub)
Step 3: Configure Employer Contribution
Set up employer portion tracking:
Employer Portion Setup:
- Expense Code: "PFML-ER"
- Description: "MN Paid Family Leave - Employer"
- Rate: 0.50% or 0.0050
- Account Code: Payroll tax expense account
- Applies to: All covered wages (same as employee portion)
Step 4: Update Pay Stub Templates
Ensure PFML deductions are clearly visible to employees:
- Add "MN PFML" or "Paid Family Leave" line item to pay stub
- Display amount withheld each pay period
- Show year-to-date PFML contributions
- Consider adding an informational note about PFML benefits
Step 5: Test Calculations
Before going live, run test payrolls to verify:
- 0.38% is correctly calculated and deducted from gross pay
- 0.50% employer portion is correctly tracked
- Deductions apply to all covered wage types (overtime, bonuses, etc.)
- Year-to-date totals accumulate correctly
- Pay stub displays the deduction properly
Step 6: Employee Communication
Before the first paycheck with PFML withholding:
- Send all-employee notice explaining the new deduction
- Explain what PFML benefits provide
- Show example calculations of the deduction
- Provide resources for learning more about PFML
- Display required PFML workplace poster
Major Payroll Software Integration
Most major payroll providers will update their systems to support Minnesota PFML automatically. Here's what to expect:
ADP
- Automatic PFML tax calculation and withholding
- Pre-configured Minnesota PFML tax codes
- Quarterly reporting tools
- W-2 integration for year-end reporting
- Contact your ADP representative to enable PFML tax withholding for Minnesota employees
Paychex
- Built-in PFML compliance module
- Automatic calculation of both portions
- Minnesota-specific tax setup wizard
- Direct state reporting capability
- Paychex will automatically update Minnesota payroll configurations
QuickBooks Payroll
- Automatic tax table updates for Minnesota
- PFML deduction automatically added
- Pay stub customization for PFML display
- Year-end W-2 compliance
- Update to latest QuickBooks version before January 2026
Gusto
- State-specific compliance built in
- Automatic PFML withholding for MN employees
- Employee self-service portal with PFML info
- Simplified quarterly reporting
- Gusto will handle PFML setup automatically for Minnesota employers
Using Other Payroll Software?
Contact your payroll provider before December 2025 to confirm they support Minnesota PFML tax withholding and reporting. If they don't, consider switching to a provider that does, or work with a payroll consultant to set up manual calculations.
Payment Deadlines and Remittance
Critical Deadline
PFML premium payments and wage reports are due quarterly, on the last day of the month following the end of each quarter.
Quarterly Payment Schedule
How to Remit Payments
Online Payment (Recommended)
Log in to your PFML employer account at Minnesota DEED's website:
- Navigate to "Make a Payment" or "Quarterly Report"
- Enter total covered wages for the quarter
- System automatically calculates premiums owed
- Submit payment via ACH debit (no fee)
- Receive immediate confirmation
Electronic Funds Transfer (EFT)
For large employers or automated systems:
- Set up EFT through your bank
- File wage report separately online
- Payment must be received by due date
- Keep transaction confirmation records
Check Payment (Not Recommended)
Paper checks may be accepted but are slower and more error-prone:
- Must be postmarked by the due date
- Include employer account number on check
- Mail to the address specified by DEED
- Allow extra time for processing
What to Include in Your Quarterly Report
- • Total covered wages paid during the quarter
- • Number of covered employees
- • Total employee withholdings (0.38% of wages)
- • Total employer contributions (0.50% of wages)
- • Individual employee wage details (name, SSN, wages)
Record-Keeping Requirements
Minnesota law requires employers to maintain specific PFML records for audit and compliance purposes.
Required Records to Keep
Employee Information
- Full name, address, and Social Security number
- Hire date and employment status
- Classification (employee vs. independent contractor)
- Hours worked and wage rates
Payroll Records
- Gross wages paid each pay period
- PFML withholdings from each paycheck
- Employer PFML contributions per pay period
- Pay stubs showing PFML deductions
- Quarterly and year-to-date totals
Tax Filings and Payments
- Quarterly wage reports submitted to DEED
- Premium payment confirmations
- Bank statements showing payments
- Any correspondence with the state
Leave Documentation
- PFML leave requests and approvals
- Medical certifications (if applicable)
- Communication with employees about leave
- Return-to-work documentation
Retention Period
Maintain all PFML-related records for at least 4 years from the date the wages were paid or the leave occurred. This allows the state to audit your compliance if necessary.
Best Practices for Record-Keeping
- Use Digital Systems: Electronic records are easier to organize, search, and back up
- Separate PFML Records: Keep PFML documentation in dedicated folders for easy access
- Regular Backups: Back up payroll and PFML records regularly to prevent data loss
- Reconcile Quarterly: Review records each quarter when filing reports to catch errors early
- Secure Storage: Protect employee data with password protection and limited access
Common Payroll Tax Mistakes to Avoid
❌ Mistake #1: Applying a Wage Cap
Wrong: Stopping PFML withholding once an employee reaches a certain wage threshold (like Social Security)
Correct: Continue withholding 0.88% on all wages throughout the entire year, no matter how much an employee earns
❌ Mistake #2: Excluding Bonuses or Commissions
Wrong: Only withholding PFML from regular wages, not supplemental pay
Correct: Apply PFML tax to all taxable compensation including bonuses, commissions, overtime, and tips
❌ Mistake #3: Incorrect Percentage Calculation
Wrong: Using 0.38 instead of 0.0038 in payroll formulas (off by factor of 100)
Correct: Multiply wages by 0.0038 for employee portion and 0.0050 for employer portion
❌ Mistake #4: Missing the Start Date
Wrong: Waiting until Q2 2026 to start withholding
Correct: Begin withholding on January 1, 2026 for all wages paid on or after that date
❌ Mistake #5: Not Withholding from All Employee Types
Wrong: Skipping PFML withholding for part-time, seasonal, or temporary employees
Correct: Withhold from all W-2 employees, regardless of full-time or part-time status
❌ Mistake #6: Deducting Employer Portion from Wages
Wrong: Withholding the full 0.88% from employee paychecks
Correct: Only withhold 0.38% from employees; employer must pay the 0.50% separately from company funds
❌ Mistake #7: Late Quarterly Filing
Wrong: Filing wage reports and payments a few days late, assuming it's fine
Correct: Submit by the quarterly deadline (last day of month after quarter ends) to avoid penalties
❌ Mistake #8: Incorrect W-2 Reporting
Wrong: Not reporting PFML withholdings on W-2 forms
Correct: Report employee PFML contributions in Box 14 of the W-2 with appropriate label
What to Do If You Make an Error
Mistakes happen. Here's how to correct them quickly and minimize penalties.
Scenario 1: Overwithholding from Employee
You withheld too much PFML tax from an employee's paycheck.
Steps to Correct:
- Calculate the exact amount of excess withholding
- Refund the overpayment to the employee in the next available paycheck
- Adjust your quarterly wage report to reflect corrected amounts
- If already filed, submit an amended quarterly report
- Document the correction in your payroll records
Scenario 2: Underwithholding from Employee
You withheld too little or forgot to withhold PFML tax.
Steps to Correct:
- Calculate the shortage amount
- Recover the amount from future paychecks (max 10% of net pay per period)
- You are still responsible for paying the full amount to the state on time
- Notify the employee in writing about the adjustment
- Spread recovery over multiple pay periods if needed
- Submit correct amounts on your next quarterly report
Scenario 3: Incorrect Quarterly Report
You submitted an incorrect quarterly wage report or payment.
Steps to Correct:
- Log in to your PFML employer account
- Select "Amend Quarterly Report" for the applicable quarter
- Enter corrected wage and withholding amounts
- Pay any additional amount owed (or request refund if overpaid)
- Submit the amended report as soon as you discover the error
Scenario 4: Missed Quarterly Deadline
You missed the quarterly filing and payment deadline.
Steps to Correct:
- File the overdue report and payment immediately
- Expect to receive a late penalty notice from the state
- Pay any penalties assessed promptly
- Set up calendar reminders for future deadlines
- Consider enabling automatic quarterly reminders in your payroll system
Good Faith Efforts
Minnesota DEED typically shows leniency for good-faith errors that are quickly corrected, especially in the first year of the program. However, intentional evasion or repeated violations will result in significant penalties.
Penalties for Late or Incorrect Payments
Non-compliance with PFML payroll tax requirements can result in significant financial penalties.
These penalties are separate from and in addition to the PFML premiums you owe.
Types of Penalties
Late Payment Penalty
What triggers it: Filing your quarterly report or payment after the deadline
Penalty amount: Generally 5% of the unpaid premium for each month (or partial month) the payment is late, up to 25% maximum
Example: If you owe $10,000 and pay 2 months late, penalty = $1,000 (10% of $10,000)
Failure to Withhold Penalty
What triggers it: Not withholding employee PFML contributions from paychecks
Penalty amount: Up to 100% of the amount that should have been withheld
Important: You remain liable for both the employee and employer portions even if you failed to withhold from employee wages
Incorrect Reporting Penalty
What triggers it: Submitting inaccurate wage reports or employee information
Penalty amount: $50 per affected employee, up to $5,000 per quarter
Example: Reporting incorrect wages for 20 employees = $1,000 penalty
Intentional Evasion Penalty
What triggers it: Deliberately misclassifying employees, hiding wages, or fraudulent reporting
Penalty amount: Up to 200% of the unpaid premiums plus potential criminal charges
This is the most serious violation and can result in legal action
Interest Charges
What triggers it: Any unpaid PFML premiums
Interest rate: Set annually by the state (typically around 1% per month or 12% annually)
Interest accrues from the due date until the premium is paid in full
How to Avoid Penalties
- Set Calendar Reminders: Mark all quarterly deadlines in your calendar with alerts
- File Early: Submit reports and payments a few days before the deadline to account for technical issues
- Automate Withholding: Use payroll software that automatically calculates PFML withholdings
- Reconcile Quarterly: Review your numbers before submitting to catch errors
- Fix Errors Immediately: As soon as you discover a mistake, correct it and file an amendment
- Consult Professionals: Work with a payroll accountant or HR consultant if you're unsure
Penalty Relief
In some cases, you may be able to request penalty relief if you have a reasonable cause for the error (e.g., natural disaster, serious illness, system failure). Submit a written request with documentation to DEED explaining your circumstances.
Year-End Tax Reporting (W-2 Considerations)
At the end of each calendar year, you must properly report PFML withholdings on employee W-2 forms.
W-2 Reporting Requirements
Box 14 - State Disability Insurance
Report the total employee PFML contributions withheld during the year in Box 14 of Form W-2.
Recommended Label:
"MN PFML" or "MNPFML" or "MN Paid Leave"
Amount to Report:
Total of all employee withholdings (0.38% of covered wages) for the calendar year
What PFML Does NOT Affect:
- Box 1 (Wages): PFML withholdings do not reduce federal taxable wages
- Box 3 (Social Security Wages): PFML does not affect Social Security calculations
- Box 5 (Medicare Wages): PFML does not affect Medicare calculations
Special Situations:
- Employee Moved Mid-Year: Report total PFML withheld while employed with you
- Employer Paid Employee Share: Include as taxable income in Box 1
- Corrected W-2: If you discover an error, file Form W-2c
W-2 Example
Sample W-2 for Employee with $60,000 Annual Salary:
Box 1 - Wages, tips, other compensation:
$60,000.00
Box 2 - Federal income tax withheld:
$8,500.00
Box 3 - Social Security wages:
$60,000.00
Box 4 - Social Security tax withheld:
$3,720.00
Box 5 - Medicare wages and tips:
$60,000.00
Box 6 - Medicare tax withheld:
$870.00
Box 14 - Other (MN PFML):
$228.00
Calculation: $60,000 × 0.0038 = $228.00
State Tax Implications
Consult with a tax professional about how PFML withholdings affect Minnesota state income tax calculations. State guidance will clarify whether PFML contributions are deductible on Minnesota tax returns.
Frequently Asked Questions
Quick Reference Summary
Key Numbers
- 📊 Total Premium Rate: 0.88%
- 👥 Employee Portion: 0.38%
- 🏢 Employer Portion: 0.50%
- 💰 Annual Wage Cap: None
- 📅 Start Date: January 1, 2026
- 📋 Filing Frequency: Quarterly
Important Deadlines
- Q1 2026: Due April 30, 2026
- Q2 2026: Due July 31, 2026
- Q3 2026: Due October 31, 2026
- Q4 2026: Due January 31, 2027
- W-2 Reporting: January 31, 2027
Essential Formulas
Employee Withholding = Gross Wages × 0.0038
Employer Contribution = Gross Wages × 0.0050
Total Premium = Gross Wages × 0.0088
Need Help Managing PFML Payroll Tax?
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