Minnesota paid leave payroll tax rate to remain the same next year

The announcement no doubt comes as a relief to Democrats running for reelection this year, after the program passed without a single Republican vote in the 2023 Legislature.

But DEED may be merely postponing the inevitable: State law requires that the program’s projected budget reserve at the end of each year doesn’t fall below 25% of paid leave’s total program expenditures, and the new analysis shows that it will do so in 2028.

The Spring Consulting Group projected that by 2028, Minnesota paid leave will bring in a revenue of nearly $1.3 billion but incur over $1.5 billion in expenses. The 2028 year-end balance is expected to be $200 million — about 13% of the program’s expenses. If the projections are correct, DEED will need to increase the payroll tax rate.

The report also shows that the total expenses this year — $1.3 billion — will outpace total revenue of $1.2 billion.

Paid leave grants Minnesota workers up to 12 weeks of family leave and 12 weeks of medical leave per year, capped at 20 weeks in a single year.

The analysis also did calculations assuming the state increases the payroll tax rate to 0.93%, but they show that the fund’s balance at the end of 2028 would still be expected to fall below 25% of expenditures.

DEED can’t increase the payroll tax rate above 1.1% unless the Legislature changes the law.

DEED Deputy Commissioner Evan Rowe in a statement to the Reformer said the analysis largely relied on data from other states’ programs when estimating Minnesota’s payment projections.

“That experience is useful, but Minnesota’s experience will undoubtedly be different, just as every state is different. We don’t want to overcorrect in 2027 for future-year scenarios which may not come to pass,” Rowe said.

More Minnesota-specific data collection, he said, “will allow for more detailed (and Minnesota-specific) actuarial projections into 2028 and beyond.”

Minnesota’ s paid leave program has become a commonly cited political issue in the midterm election cycle. Democrats are touting the popular benefit and its glitch-free rollout as a reason to elect them, while Republicans criticize the program for adding to Minnesotans’ tax burden.

Over 75,000 Minnesotans have claimed paid leave in 2026 so far, DEED said, totaling more than $600 million in partial wage replacement payments.

“The first six months of paid leave show Minnesotans are excited about the program and will continue using and depending on it to support themselves and their families,” DEED Commissioner Matt Varilek said in a statement.

Nearly every employer and worker in Minnesota qualifies for the paid leave program. It offers partial wage replacement for people who have welcomed a child into their home, are recovering from an injury or surgery or taking care of a loved one. Wages are determined by a wage-based formula, capped at $1,423 per week.

The program received an early spike in applications after its launch on Jan. 1, but the number has since tapered off. DEED has rejected over 40% of the total 126,000 applications it’s received, most commonly due to the lack of proper certification from healthcare providers and other documentation.

Minnesota lawmakers required DEED to conduct an actuarial analysis each year to determine the program’s solvency and required the agency to finalize the following year’s tax rate by the end of July.