In an effort to ease the burden on businesses grappling with the economic impact of the COVID-19 pandemic, Governor Phil Murphy on Monday signed legislation sponsored by Assembly Majority Leader Louis Greenwald, Assemblyman Vince Mazzeo and Assemblyman Anthony Verrelli to relieve businesses of a portion of their unemployment tax obligation during the public health emergency.
“The coronavirus has left businesses reeling from months of closures, mass layoffs and declining revenue,” said Greenwald (D-Camden, Burlington). “Without action, the unemployment tax rate was expected to rise to the highest bracket, requiring employers to pay more at a time when many will likely still be getting back on their feet. This new law will ease the tax burden on employers during this economic crisis.”
The law (formerly bill A4853) reduces the amount of unemployment taxes employers individually owe and delays a significant increase in the Unemployment Trust Fund Reserve Ratio.
An employer’s unemployment tax rate is determined by two factors: the employer’s Reserve Ratio and the Unemployment Trust Fund Reserve Ratio.
The new law excludes the cost of unemployment benefits paid to employees of an employer when calculating the employer’s Reserve Ratio during the public health emergency. An employer’s Reserve Ratio is calculated using their contributions paid, unemployment benefits charged to that account and taxable wages. The cumulative benefits are subtracted from the cumulative contributions to determine their Reserve Balance, which is then divided by average annual taxable wages to calculate the Reserve Ratio.
Next, the Unemployment Trust Fund Reserve Ratio is determined by dividing the balance of the Unemployment Trust Fund as of March 31 of the current calendar year by the total taxable wages reported by all employers for the prior calendar year.
The Unemployment Trust Fund Reserve Ratio determines which column of rates will be in effect for all employers for the rate year beginning on July 1 of the same year. The unemployment tax table has six columns of rates labeled A through E+10%, with Column A at the lowest rates and Column E+10% at the highest. When the fund is highest, employers pay a lower tax rate based on the ratio, and vice versa.
Without intervention, the unemployment insurance tax rate would have moved to Column E+10% in Fiscal Year 2022. This new law creates a more gradual shift to Column C in FY2022, column D in FY2023 and Column E+10% in FY2024.
“Many businesses were required to close quickly at the start of the pandemic. New Jersey’s economic recovery will not come as swiftly,” said Mazzeo (D-Atlantic). “Anything we can do to reduce rising tax obligations resulting from COVID-19 is a step we need to take.”
“Not since the Great Depression has our country faced an economic crisis like the one we are seeing today,” said Verrelli (D-Mercer, Hunterdon). “After all they’ve endured, businesses need relief so that they can keep employees on the payroll and rise to meet any future challenges brought on by coronavirus. This law will provide critical tax relief to employers as they continue on the long road to recovery.”
Additionally, under the law, any nonprofit or governmental employer which elects to make payments in lieu of contributions will have their payments capped at 50% of unemployment benefits paid to employees laid off by the employer during the public health emergency.
The law previously passed the Assembly in October 72-0, and the Senate in November 39-0.