February 19, 2021
New Jersey law reduces impact of COVID-19 UI benefits on employer state unemployment insurance tax rates over three fiscal years
Recently enacted AB 4853 will reduce the effect of regular state COVID-19 unemployment insurance (UI) benefits on New Jersey employer state unemployment insurance (SUI) tax rates starting fiscal year 2022 through FY 2024. (New Jersey's fiscal year for SUI tax rating purposes is July 1 through June 30.) New Jersey Governor Phil Murphy stated in his press release that COVID-19 UI benefits will have a direct effect on employers' SUI tax rates until FY 2022. (News release, governor's office, 1-4-2021.)
Other provisions of AB 4853
The law confirms that COVID-19 UI benefits will not be charged to individual employer accounts for experience rating purposes for the period of the public health emergency and state of emergency declared by the Governor on March 9, 2020, and through any subsequent extensions of the state of emergency. This provision will prevent payments of regular state COVID-19 UI benefits from having a direct impact on future fiscal year tax rates. (EY Tax Alert 2020-1958, 731-2020.)
Additionally, the law permits reimbursing nonprofit and governmental employers that elect to make UI benefit payments in lieu of contributions to reduce the amount of COVID-19 UI benefit payment reimbursement by 50% for the?duration of the public health emergency.
The law also limits the move over the next three fiscal years to higher rate schedules, which are expected to trigger due to the effect of COVID-19 UI benefits on the state's UI trust fund balance. It is estimated that the highest rate schedule, Schedule E+, would have been in effect for FY 2022, with rates ranging from 1.3% to 7.7%.
The law provides that if calculation of the actual fund reserve ratio would result in the selection of a rate schedule with lower contribution rates for FY 2022—2024 from those shown above, the lower rate schedule will apply.
The New Jersey Office of Legislative Services estimates that by setting lower rate schedules than dictated by the fund's actual reserve ratio, the law will reduce revenues to the state's UI trust fund by at least $660 million in FY 2022, $450 million in FY 2023, and $230 million in FY 2024 relative to the contribution amounts payable under the tax schedule that would otherwise have taken effect. (AB 4853 fiscal estimate.)
Ernst & Young LLP insights
New Jersey is one of 22 jurisdictions that applied for and was approved to receive federal UI loans due to the impact of COVID-19 UI benefits on their UI trust fund balances. As of February 9, 2021, the U.S. Department of Treasury shows that New Jersey has an outstanding federal UI loan balance of $781,624,826.20. Failure to repay this federal UI loan balance by November 10, 2022, would result in a federal unemployment insurance (FUTA) credit reduction of 0.3% for calendar year 2022 and a corresponding increase in the FUTA taxes that New Jersey employers pay.
EY Payroll News Flash