February 4, 2021
Virgin Islands 2021 SUI tax rates to increase under a new payroll variation rating system
Virgin Islands legislation enacted in 2019 (Bill No. 33-0090) changes the method of determining employer unemployment insurance (UI) tax rates from a flat 2.5% assigned to most employers to a payroll variation system similar to Alaska's rating system. (Governor Albert Bryan Jr.'s news release.)
The Virgin Islands Department of Labor released a spreadsheet presentation explaining that the 2021 base UI tax rates will range from 1.5% to 5.4%, with the assignment of a base tax rate in relation to the individual employer's history of negative or positive payroll growth. According to the presentation, employers may see an initial increase in their Virgin Islands' UI taxes.
Additionally, a fund solvency contribution rate will be added to an employer's base UI tax rate, which will be based on the solvency of the territory's UI trust fund for a calendar year and the computation of an average high cost multiple (AHCM) for the year. An AHCM ratio of 1.0 is the solvency standard developed by the U.S. Department of Labor for states to meet in order to have one full year of benefits available should a recession occur.The fund solvency contribution rate will range from a negative 0.5% to 2.0%, depending on the calculation.
The final total state unemployment insurance (SUI) tax rates applicable for 2021 are not yet available.
According to the bill's summary:
The most significant change is replacing the reserve ratio experience rating system with the payroll variation methodology to assign individual employer unemployment Insurance tax rates. In the new system, which is much simpler to administrate, each individual employer's tax rate for a given cycle will be based on their changes in payroll for the preceding twelve quarters or three years. As an employer's payroll increases, the tax rate would be lowered, and the converse for employers that have diminishing payrolls. This factor will incentivize the system for economic growth and productivity.
The change in methodology is driven by the need to bring the territory into compliance with federal law, to bolster its UI trust fund balance, and to pay off its federal UI loan balance. The Department estimated in 2019 that the change in methodology would allow the territory to repay its federal UI loan by 2024. However, the territory has needed to request further UI advances from the federal government during the COVID-19 pandemic for the payment of UI benefits. According to the U.S. Department of Treasury, as of February 3, 2021, the Virgin Islands had a UI loan balance of $90,742,423.20.
Virgin Islands employers paid a federal UI tax rate for 2020 of 3.6% due to the failure of the territory to repay its federal UI loan that originated in 2009. (See EY Tax Alert 2020-2722, 11-18-2020, for more information.)
2021 SUI wage base
The 2021 SUI taxable wage base is $32,500, up from $28,900 for 2020. (Virgin Islands Department of Labor website.)
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