Why do you say it is taxable for federal purposes? Did you get a 1098-T? Federal rules generally do not consider scholarships used for education and fees at an eligible educational institution to be taxable income. If you use the money for room and board or anything else, then yes it would be taxable. NJ pretty much follows the federal rules for taxation of scholarships. If it is at an eligible educational institution and used for qualified education expenses, it would not be considered taxable income.
Any scholarship amount above and beyond the qualified education expenses would be considered taxable income for both federal and NJ.
However, as HalAl pointed out, this scholarship is treated differently than most scholarships. It appears as though this type of scholarship is more of payment for services than just a scholarship as they are stating that they will issue you a W-2. This means, that it would be treated as taxable income on your NJ return just as it would be on your federal return.
"All the Nurse Corps Scholarship Program funds disbursed to participants, and/or to their school on their behalf, are reported to the Internal Revenue Service on a Form W-2, Wage and Tax Statement after the end of the tax year. Please note that scholarship payments may also be subject to state and local income taxes and that the Nurse Corp Scholarship Program does not withhold state and/or local taxes." Nurse Corp Scholarship Program
(Edited 3/25/24 @ 1:21PM PST) @farniente
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