The business community will be paying more thanks to the budget the state just adopted for Oct. 1, but that’s probably not the end of the tax increases.
New Jersey’s pandemic shutdown orders have devastated the economy and sent unemployment soaring, which will trigger a large, automatic increase in employers’ unemployment insurance (UI) contribution rates unless the state or federal government intervenes.
Individual companies pay different UI rates, set in a series of tiers and columns, based on their layoff experience and the financial health of the UI trust fund. Right now, New Jersey is in the column B tier, which has the second lowest contribution rates. If nothing is done, that column that determines the rate will go right to the maximum increase, column E+10%.
Depending on a range of factors that could amount to a 58% or $919 million UI payroll tax increase per research done by the non-partisan Office of Legislative Services. The average increase would be 0.4% of total wages, but the impact would be much larger on employers with high rates of layoffs.
“The magnitude of New Jersey’s unemployment problem is staggering,” said NJBIA Chief Government Affairs Officer Chrissy Buteas. “The state went from having a labor shortage to an unemployment rate well over 10% in a matter of weeks and exhausted a trust fund that had a balance of more than $5 billion at the beginning of the year.”
According to the latest news release by the New Jersey Department of Labor and Workforce Development (DOL), 1.6 million workers have applied for unemployment benefits during the pandemic, and the state has paid out more than $15 billion in benefits. As a result, the Office of Legislative Services has estimated New Jersey employers could see a tax increase of nearly $1 billion in 2021.
As bad as the situation is, it could be worse. After the 2008 Great Recession, New Jersey enacted several reforms to protect and strengthen the unemployment trust fund. Payroll tax contributions were constitutionally dedicated to the fund for which they were intended (previously, billions of dollars in UI contributions were diverted to other budget purposes), and several anti-fraud measures were put in place.
he tax increase would take effect July 1 if nothing is done. The federal government could provide more funding for states for unemployment, but until the election, the prospects of such a move are hard to predict. The Legislature could also change the tax structure so that businesses are not hit with multiple levels of column increases all at once, but that would add more borrowing to a state that already has way too much debt.