New Jersey Businesses Facing Unemployment Tax Increase
Angela Lawrence, Quality Control Coordinator at Klatzkin, contributed to this post.
When the COVID-19 pandemic hit New Jersey in March 2020, many businesses were forced to close for a time, causing unemployment claims to spike. More than 2 million state residents have filed for unemployment since the start of the pandemic, and over $33B in state and federal benefits have been paid out. As a result, the state’s Unemployment Trust Fund (UT Fund) has been severely depleted, and the state was forced to borrow from the federal government to keep paying claims.
The Trust Fund is financed through employee and employer contributions; the employer contribution is based on the overall fund balance and how many of a business’s employees have claimed benefits. The high number of recent claims triggered a nearly $1B increase on the employer side of the unemployment payroll tax, and until recently, it was unclear exactly when that increase would need to be paid and the deficit in the trust fund replenished. However, on August 13, the New Jersey Department of Labor & Workforce Development posted new unemployment insurance (UI) rates, meaning that New Jersey employers are facing a $252M unemployment payroll tax increase effective October 1, 2021. This is just the first of three annual tax increases, and compliance is mandatory. No formal announcement has been provided by Governor Murphy’s office yet.
Critics of the move have noted that although it is somewhat of a consolation that businesses have three years to pay the tax increase, the timing is not great, as the economy is still recovering from the pandemic. The unemployment rate remains high, and recovery efforts may stall as employers are reluctant or unable to hire new employees because of the tax hike.
Republican and Democratic lawmakers alike, in addition to the New Jersey Business & Industry Association, are calling on Governor Murphy to use federal funds to replenish the UT Fund and help take some of the burdens off of the state’s businesses, noting that the American Rescue Plan Act of 2021 specifically provided money to assist state and local governments with economic recovery. Other states have used the relief money to replace their unemployment funds.
Governor Murphy has not yet announced whether any of that funding will be used specifically for unemployment purposes. A representative from the Governor’s office indicated that the federal funding would not be available for this year as the budget was already established before receiving the federal funds. Without federal aid, New Jersey businesses face the burden of three years of tax increases when they are trying to recover from an unprecedented pandemic.
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