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Saturday, May 18, 2024


Payroll Tax Hikes Loom for NJ Businesses

MT Business Front - File Photo

By Vince Conti

TRENTON – New Jersey’s unemployment insurance (UI) fund is exhausted.  

The state is borrowing from the federal government, creating a new expense that will have to be repaid. The state’s plan for replenishing the UI fund is a $940 million increase in the employer payroll tax spread over three years, with $252 million of that set to take effect this fall. 

In 2020 and 2021, the pandemic and the restrictions imposed to fight it led to massive unemployment at levels not seen since the Great Depression. The average weekly value of unemployment benefits rose, and the duration for which individuals could receive benefits was extended. This occurred as the state also experienced a significant reduction in taxable wages. 

The aftershock employers are about to experience is three years of payroll tax increases at a point when the pandemic is not yet under control and while many businesses are still struggling. 

Republican and Democratic lawmakers urged Gov. Phil Murphy to use federal relief dollars to offset the potential tax hike to employers. Roughly half of the states are doing just that. Among them is Maryland, with a Republican governor, and California, with a Democratic one. So far, Murphy has refused to use federal dollars for that purpose. 

The New Jersey Business Coalition joined with those pressing Murphy to offset the tax hike with relief funds. Republican legislators in both houses signed a petition to have Murphy recall the Legislature from recess. The petition will require Democratic support before Murphy can be forced to act. 

In the past, the state borrowed heavily from the federal government to maintain its unemployment fund following the Great Recession, in 2009. It did so, in part, because both previous Republican and Democratic administrations regularly diverted monies intended for the UI fund for other purposes, leaving the state unprepared when the recession hit. 

A pre-Covid report by the federal Department of Labor showed New Jersey’s UI trust fund status, as of Jan. 1, 2020, was below the recommended minimum adequate solvency level. Going into the pandemic, the state did not meet the federal eligibility requirements for interest-free advances. 

Unless those pressing Murphy to alter the state plan are successful, state businesses are facing an imminent payroll tax increase this fall, with additional hikes in the following two years. 

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