accounting analytics balance black and white

Gov. Phil Murphy Signs Bill To Reduce Unemployment Insurance Payroll Tax

As a way to help small businesses impacted by the ongoing COVID-19 pandemic, Gov. Phil Murphy signed legislation that aims to stave off big tax increases to replenish New Jersey’s exhausted unemployment trust fund.

Since mid-March 2020, nearly 1.6 million people have filed job loss claims and the state paid out more than $15 billion in benefits, depleting its unemployment trust fund and forcing New Jersey to borrow from the federal government to continue paying benefits.  

Signing the bill, Murphy said he believes it “will alleviate the financial burdens many businesses are facing and help them get back on their feet during this difficult time.”

What The Bill Does

With the state unemployment trust fund depleted, employers were set to see a rise in the per-employee unemployment insurance (UI) tax this year, an increase that would fall heaviest on businesses hit hardest by the pandemic and had to lay off workers due to state-mandated closures and social distancing regulations.

The law (A-4853/S-3011) passes those tax hikes onto small businesses by spreading out the increase over a three-year period. According to the state’s Office of Legislative Services, the estimated UI tax increase this year would be about $919 million.

A similar measure what put into effect following the financial crisis of 2007 to 2009.

Labor Commissioner Robert Asaro-Angelo said, “This new law will help reduce further hardship on employers, while protecting the vital lifeline of unemployment for the future.” 

‘Predictable, More Manageable’ Tax Increase

In written testimony to the Assembly Labor Committee, New Jersey Business & Industry Association Vice President of Government Affairs Christopher Emigholz said, “It is important to keep in mind that a payroll tax increase is potentially worse than other taxes because it is based on jobs.”

Each company pays different UI rates based on layoffs and the overall financial health of the state’s UI trust fund. Without intervention, New Jersey’s rate would “go right to the maximum” and ultimately “penalized struggling employers who had layoffs that were beyond their control during the pandemic,” according to Emigholz.

The measure “spreads a predictable and more manageable phase-in of the required UI tax increase over time instead of all at once,” he said. “(This will” hopefully help employers recover from the COVID-19 downturn before they have to worry about paying the higher UI rates.”

Easing the Burden

Assemblyman Louis Greenwald (D-6), a primary sponsor of the bill, said the tax rate increase slated for mid-2021 would bring it to “the highest bracket” and would require employers “to pay more at a time when many will likely still be getting back on their feet.”

“The coronavirus has left businesses reeling from months of closures, mass layoffs and declining revenue,” he said. “We need to take action to ease the tax burden on employers during this economic crisis.”

State Senate President Steve Sweeney (D-3), another sponsor, said the state cannot allow struggling businesses “to be further penalized by a rise in unemployment insurance costs when layoffs were the only option for them to save their business.”

Measure Provides ‘Critical Tax Relief’

“This law will be influential in preventing further economic damage to our businesses and communities,” he added.

Assemblyman Anthony Verrelli (D-15), a bill sponsor, said, “Not since the Great Depression has our country faced an economic crisis like the one we are seeing today. 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.”

The new law, he said, will bring “critical tax relief” to businesses “as they continue on the long road to recovery.”

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.