NORFOLK, Va. — The Virginia Employment Commission started 2020 with nearly $1.5 billion in its trust fund.
Now, VEC is projecting a $750 million deficit by the end of the year, meaning employers will see significant hikes in unemployment tax rates in order to rebuild the fund balance.
“Employers are facing the prospect of significant tax hikes to replenish the trust fund," said VEC spokesperson Joyce Fogg. "Businesses that have been hit hardest by the pandemic, and that have laid off or furloughed the most employees, could face the highest tax increases.”
The VEC said it projects its trust fund will be out of money within the next two months, due to an unprecedented number of unemployment claims and a massive demand for benefits.
"Virginia will have to borrow funds from the federal government to continue making benefit payments," Fogg said.
The unemployment trust fund is built through employer taxes. VEC projects that business owners could pay hundreds of dollars more per employee in unemployment taxes next year.
On average, a Virginia business paid $69.92 per employee in unemployment taxes in 2020, for an average tax rate of 0.87 percent. VEC officials said this was a low rate, due to years of declining unemployment and a growing fund balance.
However, the maximum unemployment tax rate, by law, is 6.2 percent. In a presentation Thursday, VEC leaders said future tax rates will vary, but some employers could pay up to $550 per employee - a 786% increase.
The presentation noted that "these projections are based on certain modeling assumptions that are subject to change given the fluid nature of the COVID-19 crisis circumstances."
VEC reports receiving more than one million initial unemployment claims since March, leading to $6.9 billion dollars in payouts - including federally-funded programs like PUA, PEUC and FPUC.
"We're squeezing six years of unemployment into four months," a VEC spokesperson said.
Unemployed workers will also see significant cuts in their benefit payments, starting next week. The Federal Pandemic Unemployment Compensation program - or additional $600/week benefit - expires July 25.
“Barring action by congress to extend the benefit, federal law mandates the end of the supplemental benefit this week," Fogg said. “If it is extended or modified, VEC will execute it’s responsibilities under the law.”
Nationally, 1.4 million people filed for unemployment last week. It’s the first increase in total claims in months, correlating with a second major wave of COVID-19 cases across the country.