charlotteamalieThe effects of the 2009 increase in the unemployment rate continue to be felt in the U.S. Virgin Islands, as the territory struggles to pay back the balance of a federal loan taken out to maintain its ability to pay unemployment benefits and fund related programs. However, some measure of relief is on the way, as the federal government recently approved a waiver that allows the territory to be exempted from a decrease in the federal unemployment tax credit.

According to USVI Labor Department Commissioner Catherine Hendry, the remaining balance on that 2009 loan is $72.2 million. Although the territory has been making payments on the loan with consistency, its failure to pay it back in full within five years left the government at risk of experiencing a decrease in the amount credited back to employers once federal unemployment taxes have been paid.

How the unemployment tax credit works

To pay unemployment benefits to those looking for work, and to fund the cost of the programs designed to help them, the federal government collects a 6 percent tax on the first $7,000 paid to employees. This tax is also used to pay back federal loans of the sort the USVI took out in 2009. Federal unemployment taxes may be offset by a 5.4 percent tax credit provided to businesses that file their taxes in a timely fashion and abide by other conditions the government determines.

This 5.4 percent credit, however, can be adjusted in certain circumstances, as it was in 2009 when the credit was cut by 1.5 percent in an effort to help pay back the loan. Now, as the territory retains an outstanding balance on its loan, a further reduction of 2.7 percent was set to be implemented unless the government approved a waiver, for which USVI Gov. Kenneth Mapp applied in June.

Now that the waiver has been approved, employers in the USVI will see only the expected 1.5 percent reduction in the unemployment tax credit.

U.S. Virgin Islands government officials remain committed to paying the loan in full and are still looking to reduce the territory’s credit reduction, but the precise repayment plan and timeline for paying off the outstanding debt are unclear. In the meantime, USVI employers can continue to hope that there is no drastic rise in unemployment (as seen in 2009) and that the government continues to make its loan payments and support the territory’s unemployed workers to the best of its ability.

BoltNagi is a widely respected and well-established government relations law firm serving individuals, businesses and organizations throughout the U.S. Virgin Islands.