Businesses face higher unemployment taxes due to pandemic

PROVIDENCE – Due to the pandemic, Rhode Island’s unemployment insurance trust fund has “decreased significantly,” which will lead to employers having to dip into their coffers to pay more in taxes, according to the R.I. Department of Labor and Training.

DLT spokesperson Margaux Fontaine on Friday could not immediately say how much the average increase will be. She said the UI trust fund decreased from $524.2 million in March, when the COVID-19 pandemic began, to $191 million on Dec. 11.

“The tax rate schedule is based on the statutory formula that considers the balance of the UI trust fund,” said Fontaine. “Since it was depleted so significantly, that is why we have had to go to a higher tax schedule” for 2021.

“We haven’t had to borrow from the federal government yet,” noted Fontaine. “We are keeping a close eye on the fund’s balance.” If deemed necessary, she said the DLT “will take the necessary steps to” borrow from the federal government.

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Fontaine said that the stimulus funds from the Cares Act, enacted on March 27, which included the $600 per person subsidy in unemployment aid, helped thwart the need for seeking federal assistance. Unemployment insurance benefits are set to expire on Dec. 26, and the state’s unemployment rate resides at 7%.

The DLT said there were 267,516 initial UI claims from the week ending on Jan. 4, 2020 through Dec. 5, 2020. In 2019, there were 48,390 initial claims from Jan. 5, 2019 through Dec. 7, 2019, an equivalent time period.

As a result, Rhode Island employers will have to pay more in taxes to fund the UI trust fund. The trust fund is the pool from which unemployment insurance benefits are dispersed to the state’s unemployed claimants.

The new employer tax rate will increase by .95% for unemployment insurance benefits, while there will be no tax rate increase for covering the cost of funding Temporary Disability Insurance.

On Jan. 1, 2021, the Unemployment Insurance Tax Schedule will go to Schedule H, with tax rates ranging from 1.2% to 9.8%. The tax rate for new employers will be 1.16%, including the 0.21% Job Development Assessment. Tax Schedule F, with rates ranging from 0.9% to 9.4%, was in effect in calendar 2020.

The UI taxable wage base will be $24,600 for most employers and $26,100 for employers at the highest rate. By law, the UI taxable wage base represents 46.5% of the average annual wage in Rhode Island.

By comparison, the taxable wage base for the UI tax was $24,000 in 2020 for most Rhode Island employers, and $23,600 in 2019. The tax rate ranged from 1.1% to 9.7% in 2019 under schedule G, including the assessment and adjustment for the Job Development Fund), and was reduced to 0.9% to 9.4% in 2020 under tax rate schedule F.

The DLT also announced that the 2021 Temporary Disability Insurance taxable wage base will be $74,000 and that the employee contribution rate to the TDI fund will remain 1.3% for calendar 2021. The TDI taxable wage base is set at the annual earnings needed by an individual to qualify for the maximum weekly benefit rate for the maximum duration.

Employers pay a tax into the unemployment insurance system that is based on a percentage of their total employee wages. As is protocol, they are required to pay federal unemployment taxes and file an annual report.

Rhode Island unemployment claimants are receiving an additional $200 per week during the three-week pause period. That benefit is being deposited to claimants separately from their regular UI payments.

Unemployment insurance provides temporary income support to workers who have lost their jobs through no fault of their own. TDI protects workers against wage loss due to a non-work-related illness or injury.

Cassius Shuman is a PBN staff writer and researcher. He can be reached at shuman@pbn.com.