New Jersey requires most employers to participate in its unemployment insurance program. Unemployment insurance is paid for by premiums paid by both employers and employees. Generally, a New Jersey business must contribute to the unemployment insurance program if it has at least one employee and if it pays $1,000 or more in wages in a year. Any employers subject to the Federal Unemployment Tax Act are also subject to New Jersey unemployment laws. All businesses, including nonprofits, must contribute in some way to the New Jersey unemployment fund.
Exemptions from Unemployment Taxes
Certain nonprofits do not need to pay taxes directly into New Jersey’s unemployment insurance fund. Generally, if a nonprofit is a 501(c)(3) organization, it is exempt. This includes, but is not limited to, churches and organizations that are primarily religious in nature, including elementary and secondary schools operating under a church charter. Wages earned by ministers, priests or members of a religious order in the course of their duties also are not subject to unemployment taxes.
Reimbursement for Benefits Paid Out
While nonprofits are not required to pay taxes into the unemployment fund, they are not entirely free from paying for unemployment benefits. A nonprofit can opt to reimburse the state for any unemployment benefits the state pays to former employees of the nonprofit. This option may save a nonprofit money if it has a stable workforce and few former employees file unemployment claims. This is because its contribution, which is based on a percentage of its payroll, may be higher than actual benefits it has to pay out. A nonprofit that wishes to reimburse New Jersey rather than paying unemployment taxes must show proof of financial responsibility or file a bond with the state. Alternatively, the nonprofit can pay unemployment taxes just as other businesses do.
Determining whether a business or employee is exempt from paying unemployment taxes is complicated. If a nonprofit incorrectly determines it is exempt, it can face penalties in addition to interest owed on unpaid premiums. Employers who think they are exempt should contact, in writing, the Chief Auditor of the Division of Employer Accounts for a determination. The address is: Chief Auditor; Division of Employer Accounts; P.O. Box 942; Trenton, NJ; 08625-0942.
Record Keeping and Reporting
Even if a nonprofit does not pay unemployment taxes, it has record-keeping and reporting obligations. It must keep a record for each employee for five years, which must include the employee's name, address, Social Security number, dates of hiring, termination or rehiring, reason for termination, and number of weeks worked. The employer also must record weekly wages, total remuneration paid, including cash, commissions, and bonuses, room and board, meals, and gifts.