Who Pays for Unemployment in NJ: Employers, Workers, and FUTA

In New Jersey, both employers and workers pay for unemployment insurance. Employers carry most of the cost through quarterly state unemployment taxes and a smaller federal unemployment tax, while workers chip in through a payroll deduction — an arrangement only two other states use. For 2026, state contributions apply to the first $44,800 of each worker’s annual wages, and the federal tax applies to the first $7,000.¹

What Employers Pay to the State

Private employers in New Jersey owe quarterly unemployment insurance taxes on the first $44,800 of each employee’s wages for the year. Wages above that aren’t taxed for UI purposes. There’s no single employer rate. New Jersey uses an experience rating system, so the rate each business pays depends on how many of its former workers have drawn benefits and how much those claims cost the fund.²

For the fiscal year running July 2025 through June 2026, new employers start at a UI rate of 2.6825% until they build enough claims history for a personalized rate.¹ Experienced employers can pay as little as 0.5% if they rarely have claims, or as high as 5.8% if their layoff history is extensive. The rate schedule in effect at any given time also shifts with the health of the state’s Unemployment Trust Fund; when the fund balance drops below set thresholds relative to total taxable wages, every employer’s rate moves up.²

In dollar terms, an employer at the new-employer rate of 2.6825% on an employee earning at least $44,800 would owe about $1,202 in state UI tax for that worker over the year. An employer at the 0.5% floor would owe about $224 per worker. One at the 5.8% ceiling would owe about $2,598.

What Workers Pay Through Payroll Deductions

New Jersey is one of only three states — along with Alaska and Pennsylvania — that requires workers to contribute to the unemployment insurance fund themselves.³ Everywhere else, the full cost sits on the employer side.

For 2026, the employee UI contribution rate is 0.3825% on the first $44,800 in wages. That comes to a maximum deduction of about $171.36 for the year, spread across your paychecks.¹ If you earn less than $44,800, you pay proportionally less. Once your year-to-date earnings cross the threshold, the deduction stops for the rest of the calendar year.

These employee contributions feed the same Unemployment Trust Fund that employer taxes do. The money is legally earmarked for benefit payments and can’t be used for other state spending.

Federal Unemployment Tax

On top of state contributions, employers owe federal unemployment tax under the Federal Unemployment Tax Act. The gross FUTA rate is 6.0% on the first $7,000 of each worker’s wages.⁴ Employers who pay their state unemployment taxes on time get a credit of up to 5.4%, which brings the effective federal rate down to 0.6%. For an employer in good standing, that works out to a maximum federal cost of $42 per employee per year.⁵ New Jersey is not currently subject to any FUTA credit reduction, so NJ employers pay the 0.6% effective rate.

Workers don’t pay FUTA. It’s entirely an employer obligation. Household employers who hire nannies, housekeepers, or other domestic workers also owe FUTA if they pay $1,000 or more in total cash wages to household employees in any calendar quarter.⁶

Federal UI dollars serve a different purpose than state ones. They mainly cover the administrative costs of running state unemployment offices and employment services, and they fund extended benefits during severe downturns. The weekly checks unemployed workers receive come from the state trust fund, not from FUTA.

Government and Nonprofit Employers

Not every NJ employer pays into the trust fund the same way. Government entities and qualifying nonprofit organizations can elect a “reimbursable” arrangement instead of paying quarterly taxes. Under this method they pay nothing upfront. When a former employee files for unemployment and the claim is approved, the state pays the benefits and then bills the employer dollar-for-dollar.⁷

Nonprofits generally must be tax-exempt under section 501(c)(3) of the Internal Revenue Code to qualify. The reimbursable method can save money for large, stable institutions like universities or hospitals that rarely lay people off, but a single round of significant layoffs can produce a sudden, substantial bill. Organizations that elect it need the cash on hand to absorb that risk.

Other NJ Payroll Deductions That Aren’t Unemployment

If you’re looking at a New Jersey pay stub and trying to work out which line funds unemployment, be careful. Several other state programs are deducted alongside UI and are easy to confuse with it:

Temporary Disability Insurance (TDI): workers pay 0.19% on the first $44,800 for 2026. This funds short-term disability benefits for non-work-related injury or illness.
Family Leave Insurance (FLI): workers pay 0.23% on the first $44,800. This covers paid leave to bond with a new child or care for a seriously ill family member.
Workforce Development (WF/SWF): workers pay 0.0425% on the first $44,800. This funds job training and workforce programs.

Employers also pay into TDI and workforce development on their side, but not into FLI, which is fully worker-funded.¹ The combined employee deductions across all four programs are modest, but together they exceed the UI piece alone. Knowing which line is which matters if you ever need to claim benefits from one of them.

1
State of New Jersey Department of Labor & Workforce Development. Rate Information, Contributions, and Due Dates
2
Justia. New Jersey Revised Statutes Section 43-21-7 – Contributions
3
Department of Labor. Comparison of State Unemployment Insurance Laws
4
Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax
5
Office of the Law Revision Counsel. 26 USC 3302 – Credits Against Tax
6
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
7
Justia. New Jersey Revised Statutes Section 43-21-7.2