For budgeting purposes, you should assume a 0.6% FUTA rate on the first $7,000 in wages for all states, unless you will be working in the U.S. Virgin Islands (USVI), in which case, you should assume a 3.9% rate.
Why? The IRS dictates that an employer will pay federal unemployment taxes at the rate of 6.0% less a standard FUTA credit of 5.4% to cover their FUTA liability. In 2020, the U.S. Virgin Islands (USVI) was the only jurisdiction still behind in its federal loan and was thus subject to a 3.0% credit reduction.
Because the USVI is still behind in its balances, an additional assessment of 0.3% may be required in 2021. Therefore, the 2021 FUTA credit reduction (FCR) for the USVI is expected to be 3.3%, for an effective federal unemployment tax rate of 3.9% [calculated as 6.0% (the actual FUTA rate) less 5.4% (the standard FUTA credit allotted to each state or territory) + 3.3% (expected FCR)].
If a state or territory falls seriously behind, i.e. has five or more consecutive January 1’s with an outstanding federal advance (which gets paid off via FUTA remittances), the federal government can also assess a Benefit Cost Ratio (BCR) add-on to accelerate the reduction of the loan balance.
As in prior years, in 2020 the Virgin Islands applied for and was granted a waiver of the BCR, so the territory was not subject to a BCR add-on and an additional potential FUTA credit reduction of 0.7% was avoided. If the territory’s waiver request had not been approved, Virgin Islands employers would have paid their 2020 FUTA taxes at a rate of 4.3%. If needed, an additional waiver for 2021 would be applied for by July 1st, so a future assessment is currently unknown.
The wage ceiling for FUTA is $7,000. Once an employee’s year-to-date (YTD) wages exceed $7,000, the employer stops paying FUTA for that employee. So, for 2021, USVI employers can expect to pay, assuming the BCR is again waived, up to $273 in federal unemployment tax costs for each employee ($7,000 x 3.9%).
Last updated 1.21.21. This information in this communication is general in nature, and is not intended, nor should it be construed, as legal, accounting, tax or other professional advice rendered by GreenSlate, LLC. The reader should contact his or her attorney, CPA, or tax professional prior to taking any action based upon this information.