Running Payroll in U.S. Virgin Islands: Employment Taxes & Setup

Payroll in the U.S. Virgin Islands centers on correctly withholding Virgin Islands income tax, calculating and remitting U.S. Federal Insurance Contributions Act (FICA) Social Security and Medicare, and paying local unemployment insurance and other statutory levies. You also need robust payroll reporting to the Virgin Islands Bureau of Internal Revenue (VIBIR) and the Virgin Islands Department of Labor, with accurate records of wages, taxes, and benefits for each employee.

Non-compliance can trigger penalties, interest, and audits from VIBIR and federal agencies, as well as delayed wage payments and loss of employee trust if net pay is wrong. This guide helps you and your team handle calculations, deadlines, filing procedures, and setup for both local entities and those using an Employer of Record, noting where rules vary by income thresholds, pay frequency, and business size.

Payroll Cycle in US Virgin Islands

The payroll cycle in US Virgin Islands is usually monthly, with employees being paid as stipulated in employment contract.

In the U.S. Virgin Islands, you manage a mix of local income tax withholding, federal-style Social Security and Medicare under FICA, and territorial unemployment insurance, each with its own rates, wage bases, and filing schedules. Understanding who pays what portion and when it is due is essential to avoid assessments from the Virgin Islands Bureau of Internal Revenue and the Virgin Islands Department of Labor.

Virgin Islands Income Tax Withholding

Virgin Islands income tax mirrors the U.S. federal income tax structure, with progressive rates from 10% up to 37% applied to employee taxable wages, and employers responsible for withholding and remitting on each payroll. You file quarterly withholding returns with VIBIR and deposit tax either monthly or semi-weekly depending on your total liability, with penalties and interest applied for late or underpaid amounts.

Employees bear the tax economically, but you as the employer are liable if you fail to withhold correctly or do not deposit on time. VIBIR can impose penalties that quickly exceed 10%–25% of the unpaid tax, along with potential liens and intensive audits if non-compliance persists.

FICA Social Security And Medicare

FICA in the U.S. Virgin Islands follows U.S. federal rules: Social Security is 6.2% for the employer and 6.2% for the employee on wages up to the annual wage base, while Medicare is 1.45% for the employer and 1.45% for the employee on all wages, plus an additional 0.9% Medicare surtax on higher employee earnings. You deposit these combined payroll taxes using the Electronic Federal Tax Payment System on a monthly or semi-weekly schedule, and reconcile them on quarterly Form 941-SS or equivalent territorial forms.

Although employees contribute half of the standard FICA rate, you must match their contributions and are responsible for correct calculation and timely deposits. Late or missing FICA payments can trigger federal trust fund recovery penalties, interest, and potential personal liability for responsible officers if willful non-payment is found.

Virgin Islands Unemployment Insurance (VI UI)

Virgin Islands unemployment insurance is an employer-paid tax administered by the Virgin Islands Department of Labor, generally ranging around 2.43%–5.4% on a defined wage base per employee, with the exact rate depending on your industry and experience rating. You report quarterly wages and pay contributions on or before the quarterly due dates, using the forms and online systems specified by the Department of Labor.

Because employees do not contribute to VI UI, the full cost sits with your business and should be factored into your total employment cost planning. Late filings or payments can result in escalating penalties, interest, and potential loss of favorable experience rates, which increases your future unemployment tax percentage.

Most employers in the U.S. Virgin Islands pay employees via direct deposit to local or U.S. bank accounts, though paper checks and payroll cards are also used where banking access is limited. Wages are typically paid in U.S. dollars, and you should align pay frequency with local practice, such as biweekly or semi-monthly, while respecting any contractual payday commitments.

If you do not have a local entity, you can use an Employer of Record to hire and pay staff compliantly, or register your own entity and set up local payroll with a banking relationship and tax accounts. Payslips should clearly show gross pay, hours worked where relevant, itemized deductions for income tax, FICA, and unemployment where applicable, plus net pay and the pay period covered.

• Payment Methods: Use direct deposit as the default, with checks or payroll cards as backup where employees lack bank accounts.
• Currency: Pay salaries in U.S. dollars to align with local tax calculations and banking infrastructure.
• Pay Frequency: Set a consistent biweekly or semi-monthly schedule and communicate fixed paydays to employees in contracts and policies.
• No-Entity Hiring: Engage an Employer of Record if you lack a registered Virgin Islands entity but need to hire quickly and compliantly.
• Payslip Content: Include gross earnings, hours, tax withholdings, employer and employee contributions, and final net pay for each period.
• Record Keeping: Retain payroll records, payslips, and tax filings for at least several years to satisfy VIBIR and Department of Labor audit requirements.
• Bank Setup: Coordinate with a bank that can handle payroll batches and tax payments aligned with your payroll calendar.

Getting payroll set up correctly in the U.S. Virgin Islands determines how smoothly you can hire, pay, and stay compliant with VIBIR and Department of Labor rules. Your approach will differ depending on whether you register a local entity and run in-house payroll or rely on an Employer of Record to handle employment and statutory payments for you.

With your own entity, you control contracts, benefits, and systems but must manage all registrations, filings, and audits directly, while a no-entity model shifts those obligations to a local Employer of Record or payroll partner. Clarifying your route early helps you avoid delays in onboarding and missed tax deadlines.

• Incorporation: Decide whether to form a Virgin Islands entity or operate via an Employer of Record based on headcount and long-term plans.
• Tax Registration: Obtain a Virgin Islands Bureau of Internal Revenue employer identification number and register for withholding obligations.
• Unemployment Registration: Register with the Virgin Islands Department of Labor for unemployment insurance and wage reporting.
• Banking Setup: Open a business bank account capable of handling payroll runs and electronic tax deposits.
• Payroll System: Implement payroll software or a provider that supports Virgin Islands tax rules, FICA, and local reporting formats.
• Data Collection: Gather employee onboarding data, including tax forms, Social Security numbers, contracts, and bank details.
• Policies And Calendars: Define pay frequencies, cut-off dates, and internal approval workflows for payroll changes.
• Compliance Controls: Set up internal checks for rate changes, wage caps, and filing deadlines to reduce error risk.
• Reporting Framework: Align your general ledger and HR reporting with payroll outputs for clean reconciliations.

Example Of Salary Tax Calculation

Assume a full-time employee in the U.S. Virgin Islands earns a monthly gross salary of USD 4,000, subject to Virgin Islands income tax, FICA Social Security and Medicare, and employer unemployment insurance. You would calculate employee withholdings first, then add employer contributions to understand the total employment cost and ensure the correct amounts are remitted to each authority.

While exact income tax depends on the employee’s annualized bracket and personal allowances, the process is consistent each pay period, and your payroll system should apply the latest 2026 tax tables and wage bases. The example below focuses on the sequence of calculations rather than precise bracket math so your team can mirror the workflow in your own tools.

• Step 1 – Determine Gross Pay: Confirm the monthly gross salary of USD 4,000, including any taxable allowances or overtime.
• Step 2 – Calculate Employee FICA: Apply 6.2% Social Security and 1.45% Medicare to eligible wages, plus any additional Medicare tax for high earners.
• Step 3 – Estimate Income Tax: Use the Virgin Islands income tax withholding tables to compute the monthly withholding based on filing status and allowances.
• Step 4 – Add Employer Contributions: Calculate the employer’s 6.2% Social Security, 1.45% Medicare, and applicable unemployment insurance rate on the wage base.
• Step 5 – Derive Net Pay And Liabilities: Subtract employee taxes from gross to get net pay and sum all employer contributions to determine total payroll cost and tax deposits.

Submitting Employee Tax In U.S. Virgin Islands

To submit employee taxes in the U.S. Virgin Islands, you will typically file withholding and wage reports with VIBIR and the Department of Labor, then pay amounts due via approved electronic payment channels or bank transfers. Before each submission, confirm you have your employer tax ID, the payroll period details, employee-level wage and tax data, and access to the relevant online portals or forms.

• Online Portals: Use the Virgin Islands Bureau of Internal Revenue and Department of Labor online systems where available to file returns and upload wage reports.
• Electronic Payments: Pay income tax and unemployment contributions via electronic funds transfer or designated payment platforms using your employer tax ID as reference.
• Federal FICA Deposits: Use the Electronic Federal Tax Payment System to deposit FICA and withheld income tax following your assigned deposit schedule.
• Payroll Software Filing: Configure your payroll system to generate compliant forms and, where supported, file directly with local authorities.
• Third-Party Providers: Consider outsourcing filings and payments to a payroll provider or Employer of Record that already integrates with Virgin Islands authorities.
• Reconciliation: After each filing, reconcile confirmation receipts and bank debits against your payroll register to ensure all liabilities are cleared.

Payroll Tax Due Dates In U.S. Virgin Islands

Understanding the tax obligations for both employers and employees is crucial when operating in U.S. Virgin Islands's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in U.S. Virgin Islands.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 9%–15% on top of the employee salary in U.S. Virgin Islands. This range reflects the combined cost of FICA Social Security and Medicare, Virgin Islands unemployment insurance, and any other mandatory employer-paid charges that may apply based on your industry and experience rating.

Employee Payroll Tax Contributions

In U.S. Virgin Islands, the typical estimation for employee payroll contributions cost is around 20%.

Individual Income Tax Contributions

Individual income tax in the U.S. Virgin Islands follows the U.S. federal tax rate structure, with residents generally paying Virgin Islands income tax instead of U.S. federal income tax on their worldwide income. Tax is calculated on annual taxable income after deductions and credits, using progressive brackets.

Pension in U.S. Virgin Islands

Pension arrangements in the U.S. Virgin Islands largely mirror U.S. practices, with many employers offering voluntary defined contribution plans such as 401(k)-style schemes rather than mandatory occupational pensions. Public sector employees may participate in government-run retirement systems, while private employers typically design their own plans and matching policies to remain competitive in the local talent market.