Are you responsible for taxes on unemployment insurance benefits in New Jersey? It's a smart question to ask before filing your taxes if you've collected unemployment during 2020. Assuming that unemployment benefits are never taxed can lead to a tax bill that takes you by surprise in 2021. Take a look at what you need to know about paying taxes on unemployment benefits in New Jersey.
Does New Jersey Collect Taxes on Unemployment Insurance?
No, New Jersey does not collect taxes on money paid out from unemployment benefits. You will not owe state income taxes on your New Jersey unemployment income for 2020. New Jersey joins California, Virginia, Montana, Oregon and Pennsylvania as states that don't place taxes on unemployment benefits even though they have state income taxes. You also won't have to worry about paying state taxes on your unemployment benefits if you live in one of the seven states without income taxes.
This state-level exemption is welcome news for people who've collected unemployment benefits in New Jersey in 2020. However, unemployment benefits in New Jersey are still subject to federal income taxes. Unlike regular wages, your unemployment benefits are not subject to Social Security or Medicare taxes.
Read More: Do I Have to File Income Tax on Unemployment?
How to Pay Federal Taxes That You Owe on Your New Jersey Unemployment Benefits
How can you pay federal income taxes on your New Jersey unemployment? New Jersey actually makes it very easy to ensure that you're not skipping your federal taxes by giving you an option to have 10 percent of your weekly unemployment benefit withheld for you. The state will actually mail that withheld amount to the IRS on your behalf. Here's a look at your options for paying federal taxes on New Jersey unemployment benefits:
- When you fill out your application for unemployment benefits, simply check off the option to have 10 percent of your weekly benefit withheld for the IRS.
- If you've already filled out your application without checking off this option, you can change your withholding status at any time by mailing a Request for Change in Withholding Status form to the New Jersey Department of Labor and Workforce Development.
- You can also opt to pay your federal income taxes on unemployment on your own.
Read More: How to Calculate Unemployment Pay
Many people find that having 10 percent withheld helps to prevent any unexpected tax bills at the end of the year. New Jersey makes it especially easy to stay organized regarding your unemployment benefits by providing all recipients with something called a 1099-G form that displays your total benefits received for the year.
If you've opted to have 10 percent withheld, the amount of taxes withheld will also be displayed on the form. You can access your New Jersey 1099-G form for 2020 online in January of 2021. Duplicate information is sent by New Jersey to the IRS.
Read More: What Is the Federal Tax Rate?
Will You Owe Taxes on Unemployment This Year?
If you collected unemployment benefits in New Jersey this year, the state won't be collecting income taxes on that money. However, the federal government will be collecting income taxes. The silver lining is that unemployment benefits are still taxed significantly less than regular wages because you're not responsible for withholding Social Security or Medicare taxes.
- New Jersey Department of Labor and Workforce Development: Federal Income Taxes on Unemployment Insurance Benefits
- New Jersey Department of Labor and Workforce Development: FAQ: Paying Federal Income Tax on Your Unemployment Insurance Benefits
- IRS. "Publication 525: Taxable and Nontaxable Income," Page 27. Accessed April 17, 2020.
- IRS. "Five Tax Tips on Unemployment Benefits." Accessed April 17, 2020.
- TurboTax. "Guide to Unemployment and Taxes." Accessed April 17, 2020.
- USA.gov. "Unemployment Help." Accessed April 17, 2020.
- CareerOneStop.org. "Learn More About Unemployment Benefits." Accessed April 17, 2020.
- IRS. "Form W-4V: Voluntary Withholding Request." Accessed April 17, 2020.
- IRS. "Topic No. 418 Unemployment Compensation." Accessed April 17, 2020.
- IRS. "Estimated Taxes." Accessed April 17, 2020.
- Center on Budget and Policy Priorities. "Introduction to Unemployment Insurance." Accessed April 17, 2020.
- IRS. "Instructions for Form 1099-G," Page 4. Accessed April 17, 2020.
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.