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On November 20, 2018, Jersey City council members approved Ordinance 18-133 (see page 18 of the document), which, effective January 1, 2019, imposes a 1% payroll tax on employers for the benefit of Jersey City schools. Employers will be required to file and pay the new tax on a quarterly basis.

This is a tax on the employer, not a withholding tax on employees. The mayor is expected to sign the ordinance into law.

Employers will pay the 1% tax on the employers' quarterly payroll, defined in the ordinance as an amount equal to the total renumeration paid by an employer to employees that is subject to federal income tax withholding by the employer for federal income tax purposes for services rendered, other than domestic services in a private residence, if:

a)The services are performed within the City of Jersey City or

b)The services are performed outside of the City of Jersey City, but the place from which the services are supervised is in the City of Jersey City

Such amount shall generally be based on the amount reportable by the employer on its federal Form 941 and shall include, but not be limited to, all wages, bonuses, commissions, tips, property, the right to receive property, taxable benefits and all other forms of compensation.

Ordinance 18-133 provides that an employer "will incur no payroll tax relative to its Jersey City-resident employees." The employer must provide the city with written evidence and documentation of the relevant Jersey City resident to be excluded from the payroll tax calculation.

State legislation enacted earlier this year allowed for the new payroll tax

AB 4163, enacted by the New Jersey state legislature earlier this year, allows municipalities with a population of over 200,000 to establish an employer payroll tax of up to 1%. (See EY Payroll Newsflash Vol. 19, #109, 6-27-2018.)

Currently, only Newark and Jersey City meet the population requirement; however, Newark already imposes a 1% payroll tax on businesses.

Of interest, AB 4163 provides that municipalities imposing the payroll tax may exempt from the definition of covered payroll remuneration paid to employees who are residents of the municipality.

Ernst & Young LLP insights

The New Jersey Business and Industry Association (NJBIA) and other business groups testified against the ordinance.

"Many companies courted by Jersey City have moved across the Hudson River from New York and have made significant capital investments, including adding thousands of new employees," NJBIA Vice President Andrew Musick said. "This payroll tax will effectively chip away at the competitive advantage Jersey City has established, as a lower cost alternative to surrounding states and specifically, New York City. In short, a payroll tax would make Jersey City less competitive."

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EY Payroll News Flash