Just as PTO varies by state, so do payroll laws. If you’re running a business in New Jersey, you need to know how to run payroll specific to the state’s laws to make sure you have compliant payroll processes.
New Jersey has two payroll taxes: state income tax and state unemployment tax. If your business is subject to tax laws in Newark or Jersey City, you’ll also need to pay payroll taxes to those localities.
Before you start running payroll in New Jersey, brush up on the state’s payroll laws with this helpful guide.
1. Register Your Business with New Jersey
After setting your business up federally by getting a Federal Employer Identification Number, or FEIN, through the IRS, you can register your business with New Jersey. You’ll need your FEIN to do this.
You’ll use the state’s business registration portal to file your business entity and form NJ-REG online.
Once you have this step complete, you’ll also be able to log into New Jersey’s Division of Taxation portal to file and pay your state withholding and unemployment taxes without needing to register a new account. Your login is simply your taxpayer ID and a PIN or your official business name.
If your business is subject to Newark tax, create a Newark Payroll Tax account. Also, register to file and pay Jersey City payroll taxes if your business falls within the city’s jurisdiction.
2. Collect New Hire Forms and Report New Hires
After enrolling your business in all the necessary portals, it’s time to get your new hires set up. Every New Jersey new hire should be reported within 20 days of their hire date or rehire date.
Collect the following from every employee:
- Federal Form I-9: Form I-9 verifies that your employee is eligible to work within the United States.
- Federal Form W-4: Form W-4 is for federal tax purposes. Employers use it to confirm how much they should withhold from an employee’s paychecks for federal taxes.
- New Jersey Form NJ-W4: Similar to federal Form W-4, the NJ-W4 determines an employee’s allowances for tax purposes. However, this form is used specifically for employers to withhold the correct amount of state taxes from employee paychecks.
New Jersey’s new hires get reported through the state’s child support portal, making it easier for the state to comply with child support orders. Register to report new hires through this portal, allowing you to send in new hire information conveniently online.
3. Calculate, File, and Pay New Jersey Payroll Taxes
Your next step is collecting time cards to calculate each of your employee’s gross earnings. You’ll use that number to calculate your withholding taxes for state income tax, local payroll tax, and state unemployment taxes.
State Income Tax
All employees who aren’t exempt from New Jersey income tax must have the state’s income tax withheld from their paychecks. New Jersey income tax ranges from 1.5% to 11.8%, depending on the employee’s earnings.
Remember to take into account the number of allowances an employee has noted on their NJ-W4 form. You’ll also need to look at which boxes are checked in line 2 of the NJ-W4 to determine whether that employee gets taxed at rate “A” or “B.”
Rate “A” is for employees with box 1 or 3 in section 2 checked. Rate “B” is for employees with box 2, 4, or 5 checked, and line 3 is blank.
Use the New Jersey tax withholding rate tables to find out how much to withhold from each paycheck.
I’ll use an example of an employee, Jill, who gets paid biweekly and earns $2,000 per paycheck. Jill is a single filer with one allowance, so you’ll use rate “A” for her withholdings.
Jill’s income falls within the 6.1% tax bracket, so she gets taxed at $31 plus 6.1% of anything over $1,538. We need to subtract Jill’s one allowance first from her wages for this period. One allowance in New Jersey is $38.40, which we’ll subtract from $2,000, leaving Jill with $1,961.60 in taxable wages.
- $1,961.60 – $1,538 = $423.60
- $423.60 x 6.1% = $25.84
- $25.84 + $31 = $56.84
For this paycheck, we’d withhold $56.84 in state income taxes from Jill’s paycheck.
These taxes must be filed quarterly by April 30th, July 30th, October 30th, and January 30th using the Division of Taxation portal you registered for.
If you withhold at least $500 for the first or second months of a quarter, you need to pay monthly instead. Monthly payments are due by the 15th of the month following the month in which you withheld those taxes. So, withholding taxes collected in January must be paid by February 15th.
Newark and Jersey City Payroll Tax
Newark and Jersey City each impose a 1% payroll tax on employers only that operate within the jurisdiction of those cities. Employers with a gross quarterly payroll of less than $2,500 do not have to pay the tax.
Newark employers with more than 50% of their workforce residing in Newark don’t need to pay the tax for any resident employees exceeding that 50% mark. Newark enforces this rule to encourage employers to hire Newark residents.
To calculate your payroll tax for Jersey City, multiply your total gross payroll by 1%. File and pay this amount quarterly by April 30th, July 31st, October 31st, and January 31st.
You’ll calculate Newark payroll taxes similarly, but only using up to 50% of payroll for your workforce residing in Newark. Disregard payroll paid to your newest Newark resident employees over that threshold.
Newark payroll tax is also due quarterly on the same dates.
State Unemployment Tax
Most New Jersey employers are subject to the state’s unemployment tax, which funds the New Jersey unemployment insurance system. New employers in New Jersey get taxed at 3.2825%, while established employers will have a rate of 0.6% to 6.4%, as determined by the state annually.
This tax is employer-paid, so you won’t withhold it from employee paychecks. Instead, calculate the employee’s gross earnings for the pay period and multiply it by your rate.
For example, Jill, who makes $2,000 biweekly, will cost you $65.65 in unemployment insurance for that pay period if you’re a new employer ($2,000 x 0.032825).
However, you only pay the tax up to the first $42,300—the taxable wage base in New Jersey for 2024—an employee earns during the year. Since Jill makes more than this annually, you won’t have to pay the tax on any additional wages once she surpasses that threshold.
Filings and payments are due quarterly on April 30th, July 30th, October 30th, and January 30th, aligning with state income tax withholdings.
Maintain Payroll Records
The federal government requires employers to keep payroll records for at least three years, but New Jersey extends its requirements to six years.
Every payroll record needs to be “complete, true, and accurate” by New Jersey standards, and must include the employee’s hours worked each day and workweek, regular hourly wage, gross and net wages, deductions, and pay frequency.
Refer to Chapter 194, Laws of New Jersey, 2009 for more information about your responsibility for maintaining employee records.
The Best Way to Run New Jersey Payroll
Between remembering all the laws relevant to your payroll, like PTO payout laws that vary by state and which cities have local payroll taxes, you’ll probably find that even a payroll with just a handful of employees can quickly become a cumbersome task.
Sure, when you’re doing it manually, it is.
But when you enlist the help of payroll software, it’s actually pretty amazing how quickly your attitude toward payroll can change.
When running payroll in New Jersey, you need to remember to account for Newark and Jersey City payroll taxes if your business falls within their jurisdictions. That, in addition to the calculations and due dates to remember for income tax withholdings and state unemployment tax, creates a lot for you to manage on your own.
Payroll software is like having several extra brains and sets of hands on your team to handle everything from calculating wages to sending in your tax payments for you by their due dates. A payroll tool can reduce the risk of tax penalties and compliance issues stemming from human miscalculations or forgetting due dates.
Consider investing in payroll software immediately after setting up your business in New Jersey. Many options have flexible pricing with plans that grow with your company as it expands, preventing you from overpaying when you’re just starting out.
