Credit: (Ervins Strauhmanis via Flickr)

New Jersey businesses are getting an automatic tax cut starting next month due to the improving condition of the state fund that covers unemployment benefits.

According to the state Department of Labor and Workforce Development, the agency that administers the unemployment fund, the tax cut will total an estimated $300 million over the course of a full fiscal year.

“This is significant news for both the state and its employers and highlights the strength and resilience of New Jersey’s economy,” said Robert Asaro-Angelo, the state labor commissioner.

New Jersey’s unemployment fund is designed to ensure that state government can provide jobless benefits to laid-off workers, even during the worst recessions, by setting aside money collected regularly through payroll taxes levied on both employers and employees.

How the fund works

The fund operates outside the state budget, and its revenues are constitutionally dedicated to funding unemployment benefits.

While contributions from employees are fixed, the trust fund’s statutory rules require the rates levied on businesses to rise and fall based, in part, on the overall fiscal health of the fund.

Thanks to contributions that have surpassed initial projections, the employer contribution rates will be moved to the next lower range on the rate schedule starting July 1, labor officials announced on Wednesday.

In testimony before state lawmakers earlier this year, Asaro-Angelo highlighted how the unemployment fund was in the midst of a major turnaround after being overwhelmed several years ago during the worst months of the COVID-19 pandemic, when filings for jobless benefits surged to record highs.

Things were so bad at the time that the state needed to borrow from the federal government to keep unemployment benefits flowing to those who were out of work.

But New Jersey is now among the states that have paid back their federal loans, Asaro-Angelo said during his appearances before lawmakers in Trenton several weeks ago.

Unemployment rate steady, tax collections up

The state’s unemployment rate has also recovered since the worst months of the pandemic and was still hovering below 5% as of April, according to the latest federal data.

Meanwhile, state tax collections are also up on a year-over-year basis, including receipts from the income tax, which were up 10% year over year through the end of May, according to the state Department of the Treasury.

‘We are now able to ease employers’ burdens while continuing to strengthen our workforce.’ — Gov. Phil Murphy

“The reduction in employer contribution rates underscores our state’s forward momentum and commitment to fostering job creation and economic growth,” Asaro-Angelo said on Wednesday.

The pending tax cut for employers was also hailed by Gov. Phil Murphy, a Democrat due to leave office early next year under New Jersey’s constitutional term limits.

“The unemployment insurance tax reduction demonstrates a major milestone in New Jersey’s economic recovery following the COVID-19 pandemic,” Murphy said in a statement released Wednesday.

In 2021, Murphy signed a law that spread out steep payroll tax increases New Jersey employers were facing at the time to help restore the unemployment fund’s fiscal health.

The legislation ensured businesses would not be hit all at once with what was at the time estimated to be a $1 billion bill by phasing in the tax hikes over several fiscal years.

At the same time, Murphy also resisted pressure from business-lobbying groups and some lawmakers to use portions of New Jersey’s federal pandemic aid to prop up the unemployment fund in ways that would have eased the tax burden on employers.

“We are now able to ease employers’ burdens while continuing to strengthen our workforce,” Murphy said in Wednesday’s statement. “This progress reflects our ongoing commitment to create a robust economy that supports our employees.”