The RI Unemployment Insurance (UI) program is supported by the State Employment Security Trust Fund, which is funded by the contributions of approximately 32,000 local employers. During the recent recession, similar trust funds in more than 30 U.S. states have become insolvent. In March 2009, the Rhode Island trust fund also became insolvent, causing the state to begin borrowing from the federal government in order to pay unemployment insurance benefits. As of July 31, 2011, Rhode Island had an outstanding loan balance of $237 million.
At the request of Governor Chafee, the RI General Assembly recently passed significant UI reform legislation, which, by balancing changes to both the tax base and claimant benefits, puts the State Employment Security Trust Fund back on a path to solvency. Changes that directly impact employers include tying the taxable wage base to the average annual wage and increasing the taxable wage base for the highest users of unemployment insurance.
For approximately three quarters of RI employers, the 2012 taxable wage base will be $19,600, which correlates with 46.5 percent of the statewide average annual wage. However, for the one quarter of employers who represent the greatest users of unemployment insurance benefits—employers that have an experience rating (tax rate) of 9.79%—the 2012 taxable wage base will be $21,100. By adding $1,500 to the taxable wage base for this select group of employers, the state hopes to better balance contributions to usage. Last year, the amount of benefits distributed to former workers of the greatest users represented nearly three times the amount of contributions those same employers made to the Employment Security Trust Fund.
The changes to the taxable wage base will go into effect January 1, 2012, and will be reflected in your first quarter bill, due May 2012.
Changes to Federal Unemployment Taxes
Employers also pay an annual federal unemployment tax (FUTA) to the Internal Revenue Service. The FUTA tax covers the administrative costs of the program, pays for the federal share of Extended Benefits and provides loans to states with insolvent trust funds.
The net FUTA tax on employers is currently 0.8 percent of the first $7,000 in wages paid to each employee; this translates to a maximum tax of $56 per employee. However, in states like Rhode Island which have had outstanding federal loans for more than two years, the FUTA tax rate has increased 0.3 percent to reach 1.1 percent. This change has increased the federal tax by up to $21 per employee. The taxes collected by the 0.3 percent added to the FUTA rate will be applied to the state’s outstanding federal UI loan balance.
This additional FUTA tax is effective for RI employers’ 2011 federal taxable wages and will be due on your federal Form 940 by January 31, 2012.
Additional information is available under the ‘UI Info for Employers’ tab at www.dlt.ri.gov/ui. Click here for Questions and Answers on 2012 Tax Changes.
Questions on these tax changes should be directed to:
Phil D’Ambra, Chief of UI Employer Tax - (401) 574-8785
Sara Palmieri, Manager of Benefit Charge - (401) 462-8596