15 November 2019 Virgin Islands is again the only remaining jurisdiction with a FUTA credit reduction for 2019 According to the US Department of Labor (USDOL), the Virgin Islands continues to have a federal unemployment tax (FUTA) credit reduction for calendar year 2019. Virgin Islands employers will pay FUTA taxes for calendar year 2019 at a net rate of 3.3%, composed of a FUTA credit reduction rate of 2.7% and the 0.6% minimum FUTA rate. (US Department of Labor website.) Employers in the Virgin Islands will pay their FUTA taxes for calendar year 2019 at a higher FUTA tax rate than employers in other jurisdictions because it failed to repay its outstanding federal UI loans by November 10, 2019. These additional FUTA taxes are used to pay down the Virgin Islands' federal unemployment insurance loan balance. The increased 2019 FUTA taxes are due from Virgin Islands employers with their fourth quarter 2019 FUTA tax deposit, due January 31, 2020. As we reported, the Virgin Islands again requested a waiver of the Benefit Cost Rate (BCR) for 2019, which was approved by the USDOL, removing an additional potential credit reduction of 1.2%. Had the request not been approved, Virgin Islands employers would have paid 2019 FUTA taxes at a rate of 4.5%. (See EY Payroll Newsflash Vol. 20, #138, 9-9-2019, for more details.) The Social Security Act requires a reduction in the FUTA tax credit when a jurisdiction has an outstanding federal unemployment insurance loan balance on January 1 of the second consecutive year. The reduction in the FUTA tax credit is 0.3% for the first year and an additional 0.3% (or more) for each succeeding year until the loan is repaid. Federal law discourages states from carrying their federal unemployment insurance loan balances over several years by further reducing the FUTA credit beginning in the fifth year of the loan. This add-on to the FUTA credit reduction is referred to as the BCR. The BCR triggered on again this year for the Virgin Islands, which began borrowing in 2009 and still had a federal unemployment insurance loan balance as of January 1, 2019. The BCR penalty may be waived if the jurisdiction's governor submits an application to the US Secretary of Labor no later July 1 of the penalty year; and the jurisdiction takes no action (legislative, judicial, or administrative) during the 12-month period ending September 30 that would reduce unemployment insurance trust fund solvency during that same time period. Should the BCR add-on be waived, as is normally the case if the conditions are met, another penalty, referred to as the 2.7 add-on, can apply if the jurisdiction's average unemployment insurance tax rate is inadequate. The 2.7 add-on penalty rate cannot be avoided or waived once activated. As of November 12, 2019, the USDOL shows the Virgin Islands' outstanding UI loan balance was $63,304,933.
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