Why It Matters
Minnesota’s paid leave program will maintain its payroll tax rate at 0.88% for 2027, splitting the cost equally between workers and employers. However, state actuaries project the fund will dip below its legally required reserve level in 2028, signaling potential rate increases ahead for the program that has already distributed over $600 million in benefits.
What Happened
The Minnesota Department of Employment and Economic Development announced Friday that the state’s paid leave payroll tax will remain unchanged at 0.88% of wages—88 cents per $100 in earnings—for the coming year. The rate is divided evenly, with workers and employers each contributing 0.44%.
Spring Consulting Group, retained to conduct the annual actuarial analysis required by law, found that holding the rate steady was sustainable for 2027. However, the analysis projects significant challenges emerging in 2028, when the state estimates revenue will reach nearly $1.3 billion but expenses will exceed $1.5 billion.
State law mandates that the paid leave program maintain a year-end budget reserve equal to at least 25% of total annual expenditures. Projections indicate the reserve will fall to approximately $200 million—roughly 13% of 2028 expenses—absent a rate adjustment, dropping below the statutory threshold.
DEED Commissioner Matt Varilek noted that early program data informed the rate decision. “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,” Varilek said. Deputy Commissioner Evan Rowe added that while other states’ experiences proved instructive, “Minnesota’s experience will undoubtedly be different, just as every state is different.”
By the Numbers
0.88% — payroll tax rate for 2027, split equally between workers and employers
75,000+ — Minnesotans who claimed paid leave benefits in 2026
$600 million+ — total wage replacement payments distributed in 2026
126,000 — total paid leave applications received since program launch
40%+ — rejection rate of applications
20 weeks — annual maximum paid leave per person (combination of family and medical leave)
25% — minimum legally required year-end reserve as percentage of program expenses
13% — projected 2028 year-end reserve as percentage of program expenses
1.1% — maximum payroll tax rate without legislative action
Zoom Out
Minnesota’s paid leave program, which launched January 1, 2026, remains the only statewide paid leave system in the nation covering both family and medical leave. The program provides up to 12 weeks of family leave and 12 weeks of medical leave annually, with a 20-week cap across both categories in a single year, with a maximum weekly wage replacement of $1,423.
The program passed the 2023 Minnesota Legislature without Republican support. It has emerged as a model and cautionary case study nationally as other states weigh similar policies, though the high application rejection rate—exceeding 40%—has drawn scrutiny regarding accessibility and implementation.
Actuarial projections suggesting a 2028 shortfall reflect a common challenge facing newly launched government benefit programs: initial cost estimates often diverge from real-world usage patterns, requiring mid-course rate or eligibility adjustments.
What’s Next
If the projected 2028 shortfall materializes as anticipated, the state will likely need to increase the payroll tax rate. Spring Consulting’s analysis indicated that even a raise to 0.93% would leave the fund reserve below the 25% threshold, suggesting a more substantial increase may be necessary before year-end 2027.
The Legislature retains authority to alter the program’s structure or the maximum tax rate, currently capped at 1.1% without legislative change. State law requires DEED to conduct another actuarial analysis and finalize the 2028 tax rate by the end of July 2027.