New Jersey is that state in the United States which has the highest population density, highest percent urban population, and the densest system of railroads and highways. This is not it, for, at the global level, New Jersey has the maximum number of diners, the largest seaport, most shopping malls in one area, the tallest water tower, and the longest boardwalk.
This complexity of New Jersey is reflected in its payroll taxes as well, with all its local taxes, withholding requirements, and insurance taxes making it super confusing.
Automate Payroll Processing and Payroll Tax Compliance Get Deskera TodayThis article will help and guide you through these complexities by covering the following topics:
New Jersey, aka the Garden State of the USA, has a progressive income tax system, with its income tax rates and income tax bracket being some of the highest in the United States. In fact, New Jersey charged state income taxes on all wages.
As an employer, it is also mandatory for you to withhold taxes and unemployment insurance quarterly for each of your residents and non-resident but working in the state employees. It does, however, have a reciprocity agreement with Pennsylvania.
What also needs to be kept in mind here is that the minimum wage in New Jersey is $12 per hour for most of the workers, and this is heading towards a $15 minimum wage per hour.
Additionally, New Jersey has a single, flat statewide sales tax rate which was decreased to 6.625% on January 1, 2018. There are, however, two exceptions to these flat sales tax rates. These are:
When discussing the property taxes imposed by the New Jersey state, they have the highest property tax rate in the country as their average effective property tax rate is 2.42%, which means that each year, homeowners pay almost 2.50% of their home value as property tax to the state.
New Jersey also has an inheritance tax rate that ranges from 11% and 16% is applicable to all the beneficiaries who are not in any of the following relations to the decedent: mother, father, spouse, civil union partner, grandparent, stepchild, child, grandchild, great-grandchild, and domestic partner. If the beneficiary is a sibling, close friend, or step-parents, they would have to pay the inheritance tax, though the initial $25,000 of the inheritance will be exempted from taxation.
Additionally, capital gains are also taxable under the New Jersey state laws, as they are treated as regular income, and therefore they are taxed at applicable rates in combination with other income. Lastly, New Jersey also collects taxes of $2.70 per pack of 20 cigarettes.
Irrespective of the state that you are based in, it is mandatory for you to follow federal law for income taxes, Medicare, Social Security, and Federal Unemployment Insurance (FUTA). In addition to these, the several state and local taxes that companies of New Jersey are obliged to pay are:
As per the New Jersey state income tax laws and regulations, it will be required of you to pay income tax withholdings from all state residents. This is applicable unless you are withholding another jurisdiction’s income tax at a rate that is the same or higher than New Jersey’s. Additionally, as an employer, you are also required to withhold state income taxes for nonresident employees.
Depending upon your income level, and considering that New Jersey has a progressive taxation system, it is important to know that their income tax rates are done in classes of seven or eight. The income tax rates of New Jersey start at as low as 1.4% on wages up to $20,000 and rise to 10.75%.
The 10.75% tax bracket became applicable from January 1, 2020, for all employees who are earning gross income between $1 million and $5 million, regardless of their filing status. This income tax rate was initially 8.97%.
As an employer, you are obliged to withhold income tax at the rate of 21.3% from salaries, wages, and other remuneration. This higher withholding is so that taxpayers can catch up as the increase is retroactive to January 1, 2020.
Note: The withholdings need to be filed quarterly, and the year-end filings must be done electronically.
New Jersey has a reciprocity agreement and, therefore, laws with Pennsylvania. This means that if you have an employee who is a resident of Pennsylvania, then they will need to fill out Form NJ-165. Post this; you would not be required to withhold any New Jersey taxes.
New Jersey charges SUTA taxes as well. If you are an employer who has employed one or more individuals, and you pay wages of over $1,000 in a calendar year, then you would be subjected to New Jersey’s state unemployment taxes.
The exceptions to New Jersey’s state unemployment taxes are those employers who have employed agricultural workers or domestic workers and some non-profit organizations.
New Jersey’s SUTA taxes are based on a taxable wage base of $34,400, with the SUTA rates running from 0.5% to 5.8% for experienced employers.
The SUTA tax rates are calculated and assigned on a fiscal year basis, i.e., from July 1 to June 30. Your experience rate is your reserve balance- i.e., contributions paid minus benefits charged, divided by your average annual payroll.
If you are a new employer, you will be assigned a rate for the first three calendar years, post which your rate will be determined on the basis of your experience. In 2021, this assigned rate for the initial three calendar years of new employers was 2.7%.
In addition to having to pay SUTA taxes, the New Jersey payroll tax laws also require you to pay a state disability insurance rate, workforce development/supplemental workforce funds, and family leave insurance. However, these are usually as little as 0.0005%.
Note: When you pay New Jersey’s SUTA taxes, you may qualify for up to a 5.4% discount on your FUTA taxes.
All the employers of New Jersey are not covered by federal programs, and thus, you, as a New Jersey employer, need to have workers’ compensation insurance or qualify for self-insurance.
In order to self-insure, you will need to get approval from the Commissioner of the Department of Banking and Insurance. The approval of self-insurance is based upon the employer’s financial ability to meet its obligations under the law as well as the permanence of his or her business.
Like several states of the United States, New Jersey too is moving towards increasing its minimum wage to $15 per hour. However, the minimum wage rates vary according to the type of job.
Thus, if you are an employer with less than six employees, then your minimum wage rate as per the New Jersey laws may be lower. In case you have tip-earning employees who are expected to make up part of their wage through their tips, you will still be obliged to pay a minimum wage regardless. Similarly, if you have farm employees who are doing piece-rate work for you, you would still have to pay them the minimum wage.
Seasonal and Small Employers (
Cash Wage for Tip Earners
