The New Jersey Department of the Treasury is responsible for collecting state income taxes. The department offers several tax credit and rebate programs to help residents reduce their state income tax liabilities. To help unemployed residents, the New Jersey allows them to exclude unemployment earnings from their state income tax returns.
The recent economic slump led to high numbers of Americans filing for unemployment benefits. With the high numbers of long-term unemployed workers receiving benefits, Congress enacted a short-term tax law in 2009 allowing unemployed taxpayers to receive an exemption from paying federal income taxes on a limited portion of their unemployment insurance benefits. Under the federal American Recovery and Reinvestment Act, Congress allowed workers to exclude the first $2,400 of their annual unemployment earnings. Although the federal law expired in 2009, many states adopted similar tax relief laws extending the benefit to their residents.
Taxation of New Jersey Unemployment Benefits
As of 2011, New Jersey law exempts unemployment income from taxes. Thus, residents do not have to report their unemployment benefits on their New Jersey income tax returns. Similarly, residents receiving temporary disability benefits from the state workers' compensation program or temporary disability insurance program do not have to report their benefits.
New Jersey Disability During Unemployment Program
Under the New Jersey Disability During Unemployment compensation program, eligible workers receiving unemployment benefits can simultaneously receive disability benefits if they become disabled while collecting unemployment. The program creates an exception for disabled unemployed claimants to look for suitable work. Unemployed workers receiving disability and unemployment benefits do not have to pay state income taxes on their benefits.
Taxation of New Jersey Employers
Unemployed workers in New Jersey qualify for up to 26 weeks of regular unemployment benefits. The New Jersey Department of Labor and Workforce Development administers the state's unemployment benefits and collects payroll taxes from employers located in New Jersey. New Jersey employers are required to pay unemployment taxes based on their unemployment or experience ratings. Although all new employers pay the same amount of unemployment taxes for the first three years, their tax rates may increase or decrease depending on the number of employees who file for unemployment benefits. Under New Jersey law, employers pay unemployment taxes on a limited portion of their wages. For 2011, the taxable wage limit is $29,600.