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Virginia employers get tax relief, unemployment insurance tax rate won't increase next year

Businesses that laid off or furloughed workers during the start of the pandemic won't pay higher unemployment taxes in 2021 to refill a depleted VEC fund balance.

VIRGINIA BEACH, Va. — Virginia business owners who laid off or furloughed workers at the start of the pandemic will not have to pay significantly higher unemployment insurance taxes next year. 

Instead, Virginia will use CARES Act money to refill a depleted unemployment fund balance.

The Virginia Employment Commission started the year with $1.46 billion in its unemployment trust fund. With record unemployment, that money ran out by October. Over the summer, VEC spokesperson Joyce Fogg said employers would pay more in taxes in 2021.

“Employers are facing the prospect of significant tax hikes to replenish the trust fund," Fogg said. 

Governor Northam's latest Executive Order, announced Tuesday, changes that. The VEC won’t be counting layoffs that took place in April, May, or June of 2020 against businesses when calculating unemployment insurance tax rates for 2021.  

“The restaurants and businesses aren’t going to be penalized for something they didn’t have control over," said Stacey Shiflet, Executive Director of the Virginia Beach Restaurant Association.

Shiflet said a big unemployment tax hike would’ve devastated many small business owners.

“If this doesn’t happen, we could see in the next couple months, many restaurants closing in Virginia Beach," she said. “We’ve got restaurants that in 20 years have never had an unemployment claim, and to be penalized would not have been a good thing.”

Instead, Virginia will use $210 million in CARES Act money to refill the unemployment trust fund.

The Commonwealth has been borrowing money from the federal government since October to pay unemployment benefits. The federal loans come with interest.

The Virginia Employment Commission has paid out nearly $10 billion in benefits this year. More than 1.4 million Virginians have filed claims in 2020, more than 10 times the number that filed in 2019.

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