Why N.J. businesses will pay an extra $252M in UI tax now — potentially billions more later

New Jersey, unlike many other states, will not use federal funds to cover (or help pay down) money needed to replenish unemployment insurance trust fund in FY2022

The New Jersey business community will be required to pay approximately $252 million more in additional unemployment insurance (read: taxes) in Fiscal Year 2022 to help replenish the state’s unemployment insurance fund. And that’s just the start of what could be a billion-dollar bill.

The increase is the first of what is expected to be three consecutive years of UI tax increases that potentially could leave the New Jersey business community responsible for providing nearly $1.7 billion more to the fund.

New Jersey companies will begin making an increased payment Oct. 30, when the payroll tax for the third quarter (July-September) is due.

The fact that they will be hit with the entirety of the bill was a bitter disappointment for business leaders and some elected officials, who were hoping the state would use some of its federal funding to help in the effort.

The fact that money is needed to replenish the fund is well-known and without dispute. New Jersey has paid out more than $28 billion to more than 2.1 million New Jerseyans from the start of the pandemic through May — an exponentially unprecedented use of the fund.

While the government seemingly has appeared to have unlimited funds during the pandemic, this is an example of how and when the bill comes due.

It should be noted: The three-year window to replenish the fund, which was approved in a measure by Gov. Phil Murphy and the Legislature earlier this year, was done in an effort to help the business community. Paying over three years is easier to handle than one lump-sum payment, it was reasoned.

How much more will my company owe?

It’s difficult to say. There are a number of factors, obviously including how many employees you have, but also your experience rating (which is your history of using the fund). We take a closer look here.

Business leaders and mostly Republican officials were hoping that the Murphy administration would follow the lead of others and allocate some of the billions in federal funds the state received from the CARES Act or the American Recovery Plan to either replenish the unemployment insurance fund or pay it down, lessening the impact on the business community.

New Jersey business association leaders made a request for such funding during hearings concerning how ARP funds would be spent. And the heads of dozens of chambers of commerce in the state sent a letter to the administration asking for such assistance.

According to various media reports, more than 30 states have used federal funding to help replenish their state funds — and have done so at various dollar amounts. Georgia has said it will use $1.5 billion of its federal aid to help shore up the fund. Maryland has said it will use $1.1 billion. Wyoming has committed to using $25 million.

New Jersey officials did not make a formal announcement on the matter. Instead, in a Friday afternoon update, the Department of Labor & Workforce Development told businesses that they will be able to calculate their unemployment insurance total for FY2022 by using the percentage in Column C (instead of Column B). The increase will be approximately $252 million.

Businesses will used Column D in 2023 and Column E in 2024 — with each column shift leading to a major increase.

Companies calculate their unemployment insurance taxes based on which column the state is in — the column is based on the health of the fund, with A being the best and E+10% being the worst. Pre-pandemic, N.J. was in Column B.

State officials had limited responses to questions over the weekend about the increases. Angela Delli-Santi, a spokesperson for the DOL, said:

“While the new payroll tax amount is applicable for the July-September quarter, employers won’t actually experience it until they file their third-quarter taxes by Oct. 30. Rate notices are being sent out this month. They are available online to any employer who has registered through our employer access portal.

Bonus money does not need to be repaid

The additional bonus money paid to recipients collecting unemployment — initially $600 a week and now $400 — came from the federal government and not the state, meaning it is not factored into the replenishment process in any way.

In other words, even if New Jersey had stopped the increased payments, the money needed to replenish the UI fund would be the same.

“Gov. Murphy signed legislation to spread the increase over three years, rather than impact businesses in a single year by moving from (columns) B-E while they continue to recover from the impacts of COVID-19.”

Others were more interested in commenting.

Assemblyman Hal Wirths (R-Sparta), the Assembly Republican budget officer who previously served as the commissioner of the DOL under former Gov. Chris Christie, was not happy.

“Friday the 13th indeed turned out to be a scary day for businesses and taxpayers in New Jersey,” he said in a statement.

Wirths reiterated the desire for the state to use federal funds to help.

“I have been pleading with the Murphy administration and Democrat legislative leaders to follow the example of many other responsible states and use some of the COVID relief fund to avoid this devastating tax hike,” he said. “I wrote the bill (A5828) to do just that.

“Obviously, they don’t care about the plight of small business owners throughout New Jersey, and it is outrageous to put this burden on their backs. In fact, not only will this tax hike affect business owners, but it will cost property taxpayers more as well, since local governments will have to pay more.”

Administration officials did not respond to a request for comment on Wirth’s statements.

Since the pandemic started, however, state officials repeatedly have championed the governor’s efforts to help small businesses.

Is N.J. in the same hole as other states?

It’s hard to say, since there are many metrics involved — including the fact that New Jersey has one of the highest unemployment payouts in the country. But, there is this: Approximately 58% of the state’s unemployed workers collected UI benefits at one point in the pandemic. Only one other state topped 45% (Massachusetts, at 52%). The U.S. average was 28%. New York was at 35%, according to figures in the New York Times.

The New Jersey Economic Development Authority — through its Small Business Emergency Assistance Grant Program and other grant programs such as Sustain and Serve and the Personal Protective Equipment Access Program, has approved more than 83,300 grants worth a total of over $533 million, the EDA said. And, according to publicly available data, New Jersey ranks third among states in how much in grants it has distributed to small businesses during the COVID-19 pandemic.

In addition, $10 million was recently announced for a new round of Sustain and Serve grants and $17.5 million was announced for grants of up to $300,000 for for-profit performance venues and organizers.  An additional $125 million has been made available for grants for Phase 4 of the Small Business Emergency Assistance Grant program, too, EDA officials said.

Murphy administration officials also point to the recent upgrades from all three major credit ratings (Moody’s, S&P and Fitch) as evidence their financial decisions are leading New Jersey in the right direction.

Then there’s this: The Murphy administration has not announced how it will use all of the federal funds it has received. It could use funds to help replenish the unemployment fund in FY2023 and FY2024. The state has through 2024 to use the funds.

Murphy administration officials did not offer specifics about the potential use of federal funding for this year or the coming years.

Alyana Alfaro, a spokesperson for the governor, said: “Major spending decisions on ARP funding are based on discussions with the Legislature.”

Chris Emigholz, the vice president of government affairs and the leading budget expert at the New Jersey Business & Industry Association, is hoping they will come to the aid of businesses down the line.

“We still have hope that the Murphy administration, that state Senate President (Steve) Sweeney, that Assembly Speaker (Craig) Coughlin will put in money later,” he told ROI-NJ. “Let’s say they put in $500 million later, that would mean an out-year increase, such as year three, could be reduced in some way.

“If they don’t put some money in, there will be another big increase next summer and another one the following summer.”

The Office of Legislative Services said that moving from Column C to Column D in 2023 will add an additional $296.6 million to the total. It must be noted, that’s an overall increase of approximately $548 million to the pre-pandemic total, as it represents increases of $296.6 million for the jump to Column D and $252 million that came from moving to Column C.

Return to sender?

There are no strings attached to the grant money that New Jersey businesses received through the Economic Development Authority’s Small Business Emergency Assistance Grant program. Therefore, the money companies received from the state could be used to pay their increased unemployment insurance costs.

Moving to Column E in 2024 will represent an estimated jump of $336.4 million. Combined with the increases that come with moving through Columns C and D, that means companies will pay approximately $885 million more in total than they did pre-pandemic.

A chart showing the percentage increases for the columns can be found here.

The DOL spokesperson could not confirm those numbers, but did not offer alternative figures.

Having states step in to help replenish unemployment insurance funds is not universally accepted. Workers groups have argued that any aid money should go directly into the hands of workers.

Business advocates, however, argue that increasing the tax on businesses — especially when it comes to how many employees they have — will make them less likely to hire coming out of the pandemic.

State Sen. Steve Oroho (R-Sparta), the Republican budget officer and a financial adviser by trade, feels that way.

“Some people think if the companies or corporations have to pay, it won’t affect me, but it rolls downhill,” he told ROI-NJ. “If business pay higher costs, they employ less people.

“Let’s say that you’re on a razor-thin margin, and this cost comes in — you may have to lay somebody off just to pay, just to be able to afford the additional taxes.”

Tom Bracken, the head of the New Jersey Chamber of Commerce, obviously was disappointed to learn the state would not use federal funds to help replenish the unemployment insurance pool. He hopes it’s not a sign of things to come.

Bracken and others have lobbied the administration on a number of items they feel will help the business community, including making more working capital available, back-to-work bonuses for employees, more money for child care and workforce development.

“It looks like this request might not be accepted, but we hope that the other ones we gave are being positively received,” he told ROI-NJ. “There’s a lot of pain out there in the business community. And any additional money would help.”

How we reached the $1.7 billion figure

There are a number of estimates of how much additional tax will be needed to replenish the unemployment insurance fund — and approximately how much will be raised from the three-year cycle in which New Jersey businesses use different columns to figure their tax.

From the Office of Legislative Services, using guidance from the Department of Labor & Workforce Development, here’s what the state expects to gain from the move.


Moving from Column B to Column C:

$252 million increase


Moving from Column C to Column D:

$548.6 million increase
$296.6 million increase, on top of the $252 million increase for moving from Column B to Column C


Moving from Column D to Column E:

$885 million increase
$336.4 million increase on top of the $548.6 million increase for moving from Column B to Column D

Three-year total

$252 million + $548.6 million + $885 million = $1.686 billion

Note: Companies calculate their unemployment insurance taxes based on which column the state is in — the column is based on the health of the fund, with A being the best, E+10% being the worst. Pre-pandemic, New Jersey was in Column B.