As New Jersey braces for the full impact of reduced federal funding for social services, the state is taxing private employers that have a large number of workers receiving Medicaid benefits.
The levy, for as much as $725 per employee, and went into effect this month after winning approval from Gov. Mikie Sherrill and fellow Democrats who control the state Legislature.
The proposal for what’s officially labeled a “fee” in state tax law was one of several fiscal policies enacted while state government’s annual budget was under negotiation late last month in Trenton.
Taken together, a package of tax changes that included the Medicaid fee is expected to generate hundreds of millions of dollars in new revenue as the state budget has expanded to nearly $61 billion, a record high.
It was Sherrill, a former congresswoman who took office in January, who proposed charging big companies if a large share of their employees were enrolled in the state’s Medicaid program. In her public budget address in March, she linked the proposal to reductions in federal spending on Medicaid and other social services enacted last year by President Donald Trump and fellow Republicans who control the Congress.
These and other federal policy changes are shifting significant costs to state governments, already bearing major Medicaid costs, while also threatening to strip benefits from many current Medicaid recipients.
Amazon, Walmart workers
Rather than ask state taxpayers to cover some of those expenses, “this budget looks to large employers,” Sherrill said during the March 10 budget message as she pitched the Medicaid fee.
Lawmakers ultimately agreed with her, and employers with at least 50 workers enrolled in Medicaid are now required to pay. Nearly 750 employers fit those criteria, and some, including Amazon and Walmart, had thousands of employees and their dependents participating in Medicaid, according to a 2024 state Department of Human Services report.
Credit: (AARONP/BAUER-GRIFFIN/GC IMAGE)Companies pay a minimum $325 per employee plus dependent, to a maximum $725, linnked to the number of Medicaid-enrolled employees who otherwise could be on a company-provided health plan.
The new fee has strong backing from New Jersey Citizen Action, a group that advocates for the lowest-income residents.“States are having to navigate the largest cuts to health care and programs that the nation’s ever seen, causing budget gaps that no state can fully fill,” said Laura Waddell, the group’s health care program director. “So states have no choice but to consider innovative ways to raise revenue in order to protect the continuity of health care and services to our residents,” Waddell told lawmakers last month.
“On the other side of the coin, it’s vital that we protect our low-income and most-vulnerable residents, who’ve been targeted by this federal administration, time and time again.”
California and Connecticut are considering such a fee. Massachusetts had one in 2018-2019. In Colorado, Oregon and Washington it has failed to become law. In Maryland, it was blocked by a federal judge in July 2006, seven months before it was enacted.
The fee is expected to generate more than $150 million for the fiscal year that started July 1, according to a fiscal estimate by the nonpartisan Office of Legislative Services.
Credit: (Twenty20)Additional new revenue will come from a temporary cap on state corporation business tax net operating losses, and limits on New Jersey’s alternative business calculation deduction, according to budget documents.
Structural gap progress
The tax changes, collectively, helped Sherrill and lawmakers narrow a structural budget imbalance that was projected to total nearly $3 billion earlier this year. Some spending cuts were also enacted by Sherrill and lawmakers in late June. The budget cap was reduced to $1.35 billion.
Funding for direct property tax relief payments sent to some senior homeowners was reduced as part of this effort, saving hundreds of millions of dollars, according to budget documents.
It was the package of business tax-policy changes that drew the loudest opposition, including from several business-lobbying groups, during marathon budget committee hearings late last month. Those groups ultimately won some concessions, with lawmakers creating some exemptions and credits as they drafted amendments to Sherrill’s original fee proposal. Not counted for the Medicaid fee calculation will be disabled, part-time and seasonal workers.
Accounting for the carveouts and credits, though, will significantly lower the total amount of revenue the state is expected to receive from the new fee during the 2028 fiscal year, when companies can claim their credits, according to the OLS estimate.
That’s a concern raised in a state budget report this month from New Jersey Policy Perspective, a Trenton-based think tank whose suggestions to raise revenue include calling for higher levies on corporations and wealthy individuals.
“The current budget does not make future budget math easier,” the report said.
And the fee itself potentially could face a successful court challenge on the grounds that it conflicts with federal rules governing employer-provided benefit plans, according to John Holub, president of the New Jersey Retail Merchants Association.
“It’s very unlikely to survive any judicial scrutiny, and for that reason alone, I think it shouldn’t advance,” Holub told lawmakers at a public hearing in Trenton last month.
This story is made possible in part by the Corporation for Public Broadcasting, a private corporation funded by the American people.
