Employer Tax – Job Development Assessment

In 2011, the state’s job development assessment - which is paid by employers, increased to fifty-one hundredths of one percent (0.51%) of an employer’s taxable payroll, up from 0.21 percent. The difference of 0.3 percent went to pay the interest on federal loans and to help repay borrowings from the federal government. (Proceeds of the loans had been used to cover unemployment insurance payments to those who qualified A new law passed by the RI General Assembly and signed by Governor Chafee in July 2013 sunsets that 0.3 percent assessment in tax year 2015. This change means that the job development tax assessment will drop to its pre-2011 level of 0.21 percent. The Chamber strongly supported this change and advocated for its passage. The sunset is reliant however, on the loans from the federal government being paid off in full by the state. As of approximately December of last year, Rhode Island still had more than $125 million in outstanding loans from the Federal Unemployment Account. This total is down from a one time high of more than $440 million. (A total of 20 states – including Rhode Island – and the Virgin Islands owe a combined total of $20.7 billion.)

Expansion of TDI

The Temporary Caregiver Insurance program (TCI) is an expansion of TDI (Temporary Disability Insurance) that the Chamber opposed but was passed by the General Assembly and signed into law by Governor Chafee in July 2013. The expansion became effective just a few weeks ago in the first week of January. As the TCI program was presented during legislative testimony and as it is described now by the Department of Labor and Training, this expansion of TDI “provides up to four weeks of wage replacement benefits to workers who need to be out of work in order to care for a seriously ill child, spouse, domestic partner, parent, parent-in-law or grandparent or to bond with a newborn child, adopted child, or foster child.”

A claim cannot be filed until an employee has been out of work for at least seven consecutive days due to the need to care for a seriously ill family member or to bond with a new child. (Bonding claims may be filed by both parents but only during the first 12 months of parenting. Proof of a parent-child relationship is required.)

The TCI program will be administered by DLT's Temporary Disability Insurance Division and is financed by employee payroll deductions. Monetary eligibility requirements for TCI are the same as for Temporary Disability Insurance. Claimants must have worked in RI and paid into the TDI fund. An individual may be eligible to receive up to four weeks of TCI benefits during a 'Benefit Year Period.' The Chamber opposed the expansion because once again, Rhode Island would be among just a handful (three to be specific; New Jersey, California and RI) of states to provide this benefit and national business friendliness rankings will surely consider the expansion as a negative when assessing the state’s overall competitiveness. Further, one of the most important tools that business relies on is planning. Consistency and reliability,

whether it be personnel or tax/regulatory/other policy, is of great importance to business. The expansion will inhibit that need from a personnel standpoint. We will keep you up to date as a repeal of the TDI expansion will likely be the subject of legislation during this General Assembly session. For employers who have questions regarding the new law, you can contact the Chamber at 334-1000 or the Department of Labor and Training at 462-8420.

Unemployment Insurance Tax changes for 2014

The taxable wage base for calculating Rhode Island’s unemployment insurance tax will increase by about 2 percent for 2014. For most employers, it will be $20,600 for 2014, compared with $20,200 for 2013, an increase of $400, or 1.98 percent. The taxable wage base represents the maximum amount of an employee’s wages that are subject to the tax. The taxable wage base is set by law at 46.5 percent of the average annual wage in Rhode Island. A separate, higher taxable wage base applies for employers that have experienced considerable unemployment– and who therefore have used the system’s resources the most and are taxed at the highest state UI tax rate (9.79 percent). For those employers, the taxable wage base will be $22,100 for 2014, up from $21,700 for 2013, an increase of $400, or 1.84 percent. In general, the higher wage base impacts about 17.5 percent of Rhode Island employers. It is intended to help offset the large drain that these employers have on the state’s unemployment insurance trust fund. For example, in 2012, about 40 percent of all unemployment insurance benefit payments were attributable to employers in this high-rate category. The state’s unemployment insurance trust fund is generally financed by assessments on more than 30,000 private sector businesses in the state; it generally covers the cost of unemployment benefits for Rhode Island workers. Overall, state UI tax rates range from 1.69 percent to 9.79 percent for 2014, the same as for 2013 (although the rate which applies to any given employer can change over time depending on various factors).

A separate state UI tax rate applies for new employers: In 2014, that rate will be 2.85 percent, compared with the 2.83 percent rate in 2013.) Changes in the Rhode Island General Laws altered some of the key elements in the state’s unemployment insurance tax formula for 2012 and later years. The changes were part of a broader effort to restore the state’s unemployment insurance trust fund, which pays unemployment benefits and became insolvent during the recession. For example, as a result of a 1998 state law, the taxable wage base was tied to the balance of the state’s unemployment insurance trust fund.

Under the new law, the wage base is tied to the statewide average annual wage, as it was before the 1998 law took effect. In addition, the 2011 law ushered in a higher taxable wage base for those employers who have had the greatest negative effect on the state’s unemployment insurance trust fund. For them, the taxable wage base is $1,500 higher than it is for other employers.

(With thanks to Neil Downing, Chief Revenue Agent, Rhode Island Division of Taxation, for information provided.)