New Jersey is one of four states where UI tax rates are reassigned on a fiscal year (July–June) basis. The next time that UI tax rates are recomputed for New Jersey employers will be July 1, 2011.
We expect New Jersey UI tax rates to be significantly higher for most companies when tax rates for the July 2011 through June 2012 period are computed. The highest possible tax rate table (Table E) is expected to take effect.
There are five tax rate tables in New Jersey Employment Security Law. The level of solvency of the state’s UI trust fund determines which table takes effect. The UI trust fund currently has a $1.6 billion deficit, which will trigger on Table E in July.
Currently, Tax Rate Table C is in effect. For the lowest (best) tax rate bracket, the assigned rate on Table C is 0.50%; whereas the corresponding rate on Table E is 1.20% (140% higher). For a mid-range tax rate bracket, the current rate is 2.80%; whereas the corresponding rate on Table E is 3.40% (21% higher). The highest rate possible currently is 5.80% (excluding penalties); whereas the corresponding rate on Table E is 7.00% (21% higher). Click here for a copy of the full tax rate tables.
Your tax payment for the third quarter of 2011 will be due in October, and this will be the first payment that could be affected by the expected change in rate tables.
Tax Rate Table E would have taken effect on July 1, 2010 (for the current rating period) except for the fact that last-minute legislation suspended the change in rate tables for one year. This was welcome relief to New Jersey employers, but it came at a cost. Operating at a deficit causes the federal unemployment tax rate to eventually increase for employers in the state. Further, the federal tax rate keeps escalating each year in increments of 0.30% of taxable payroll until it is capped. New Jersey employers can expect escalating federal unemployment taxes at least through 2015. Further, interest is normally payable to the federal government on loans to a state’s UI trust fund. Such interest was forgiven for 2010, but is scheduled to resume this year unless there is further legislation. New Jersey Employment Security Law provides for a special assessment on employers to pay interest on the federal loans. Such an assessment appears likely for 2011. The Office of Legislative Services estimated that such assessment may be in the range of 0.10% of taxable wages, which would be about $30 per full-time employee.
In summary, the future holds significantly higher state UI tax rates beginning in July, higher federal unemployment tax rates at least through 2015, and special assessments beginning next year.
As always, if there are any questions please do not hesitate to contact us.