New Jersey business owners face a projected $200 million increase in unemployment insurance (UI) taxes scheduled to take effect in July.
However, a bill now being considered by the New Jersey Assembly Appropriations Committee would help minimize the impact on the state’s small businesses in the form of tax credits.
Assemblyman Roy Freiman, D-District 16, says while the UI tax increases may have a negative impact, it will be countered by the positive tax credits. Small businesses would be able to use the credits to offset their corporation business taxes and their gross income taxes.
If enacted, Senate Bill 2378 would adopt the U.S. Small Business Administration’s (SBA) parameters for a small business. According to the SBA, size standards are mainly based on yearly business receipts or an average number of employees. The SBA also indicates that its definition of “small” varies by industry.
Tax credits provided by the bill would be available for calendar years beginning in 2023 and the following year. Credits would be based on expected increases to unemployment insurance taxes in fiscal years 2023 and 2024.
The bill would also allow the tax credits to carry forward for seven years, and they are non-refundable.
If a small business uses government funds, including grants or subsidies, to minimize its contribution to UI, the business would be prohibited from using the tax credits.
Goal is lower UI taxes
Senate Bill 2378 has the long-range goal of reducing employer UI taxes. The bill’s sponsors are asking for the establishment of a supplemental unemployment compensation fund and $375 million to go along with it.
According to the bill, the fund would be used to pay off federal loans made to NJ’s UI fund. Once the loans are paid-in-full, sponsors say that will also eliminate federal charges for the debt, allowing the fund to regenerate quickly. With the reserves in the UI fund, sponsors hope that will lead the way for reductions in UI taxes for employers.
Opponents of the bill say the $375 million could be better spent elsewhere. They argue the current state of the economy doesn’t allow for diverting resources that could be used by people who are still out of work.
Finally, the bill calls for the Department of Labor and Workforce Development to notify individual employers, 30 days in advance, of any changes to their UI tax rates.
The bill is now before the New Jersey Assembly Appropriations Committee for consideration. We’ll keep you posted.
Don’t miss the credit if it applies to you
How will the new tax credit impact your payroll? Don’t miss a beat – the CPAs at Magone & Company have years of experience assisting businesses and individuals with our strategic Tax Planning Services. Give us a call today at (973) 301-2300 to learn more.