Quarter-billion tax hike for NJ businesses for unemployment taxes
TRENTON – New Jersey’s unemployment fund is recovering from the pandemic faster than expected, but businesses nevertheless will pay an extra $252 million in taxes into it over the coming year.
A state law enacted in January limited the financial hit to businesses, which otherwise may have approached $1 billion over the coming year. But unlike other states New Jersey didn’t use federal funding to avoid the tax increase – though it appears that isn’t actually an option until next year.
Business groups are disappointed by the tax hike and the past month and a half of uncertainty. The Department of Labor and Workforce Development notified businesses with an online post late Friday, but the increase is retroactive to July 1.
Employers won’t pay the higher quarterly tax until October, but they haven’t necessarily been putting money aside now halfway through the quarter, said Christopher Emigholz, vice president of government relations for the New Jersey Business and Industry Association.
“Why on earth if it’s in statute did it take this long to notify businesses that it was actually going to happen?” Emigholz said. “We had held out hope that maybe they were delaying this announcement because there’s a possibility that it got softened or even eliminated.”
Unemployment taxes are based on a formula that depends in part on the overall health of the state unemployment fund. There are six columns of rates, with taxes going down as the balance goes up.
In February 2020, just before pandemic lockdowns were imposed and benefit payments soared, New Jersey’s unemployment fund had a balance of $2.95 billion. That was good enough for rates to be set using the second-lowest column. It had been forecast it would reach $3.34 billion by that June.
By summer 2020, that balance had been drained and the state took on a federal loan so it could pay benefits to jobless workers. This past spring the loan balance topped $1 billion.
To keep the formula from shifting to the highest of six possible columns, a law was enacted in January that moved it from Column B to C – rather than all the way to Column E+10%, as would have happened otherwise. That kept this year’s tax hike to $252 million, rather than around $900 million.
Department of Labor and Workforce Development spokeswoman Angela Delli Santi said in an email the legislation calls for going to Table C this fiscal year and Table D next fiscal year “regardless of the UI trust fund balance.”
“The goal is to replenish the UI Trust Fund so that tax rates again drop to more favorable levels,” Delli Santi said.
That’s accurate for the current year, but not for a year from now. Then, according to the law, if the amount of money is large enough to merit using columns A, B or C in the formula, it wouldn’t have to move to Column D – but that it cannot move to E or E+10%, even if the math would call for that.
More than half the states have put at least some of their federal pandemic relief money into their unemployment funds to avoid or reduce tax hikes on businesses.
“That’s what’s frustrating about this,” Emigholz said. “And so that’s why we were hoping just as the majority of states did to put something into the fund to kind of ameliorate these taxes and that didn’t happen. So, that was a frustration of ours.”
Emigholz said that “going forward it’s not too late,” as the state still has billions of dollars of federal COVID recovery funds to commit through 2024.
“If we put a little bit of money, maybe those out-year tax increases can be softened, reduced or even eliminated if we do something now,” he said. “We had the first of the three-year increases. We can hope that this is the only UI tax increase that happens if they put enough money in.”
The labor department projects that moving from Column C to Column D in fiscal 2023 would add another $297 million to unemployment taxes, on top of this year’s $252 million. Moving to Column E in fiscal 2024 would cost another $336 million on top of that.
Businesses pay unemployment taxes to both the state and federal governments. The federal part could increase in November 2022, if New Jersey still hasn’t repaid the federal loan it took out last year to pay benefits during the pandemic.
There’s not much debt remaining – at least not right now. The loan is sort of like a line of credit that the state labor department draws on when it’s needed and replenishes as taxes come in. There was a time at the end of July when it was fully repaid, though as of late last week, the balance was $60 million. It will likely increase further, as that’s the typical cyclical nature of the fund.
“We borrow what we need when we need it. With the receipt of quarterly taxes, there have been days with a $0 loan balance,” Delli Santi said earlier this month. “In recent days, we have collected more than we need to pay benefits. The federal loan is available whenever we don't have enough to cover day's receipts.”
The unemployment fund appears to be getting back to health faster than expected. The state has forecast a $423 million balance on the loan as of the start of August.