New Jersey residents pay state as well as federal income taxes. The state exempts various benefits from income tax, including disability payments. Disabled residents of the Garden State still may owe federal tax, however, on a portion of their Social Security disability benefits.
State Disability Benefits:
The state of New Jersey offers temporary disability benefits to qualified residents. The benefits are paid out of employer contributions to a state disability fund. As a result, for federal income tax purposes, the IRS considers these benefits to be taxable sick pay, subject to Social Security and Medicare taxes as well as income taxes. You must report these benefits, which your employer reports on the W-2 form (instead of a 1099-G), on your federal return.
New Jersey residents pay state as well as federal income taxes. The state exempts various benefits from income tax, including disability payments. Disabled residents of the Garden State still may owe federal tax, however, on a portion of their Social Security disability benefits.
State Disability Benefits:
The state of New Jersey offers temporary disability benefits to qualified residents. The benefits are paid out of employer contributions to a state disability fund. As a result, for federal income tax purposes, the IRS considers these benefits to be taxable sick pay, subject to Social Security and Medicare taxes as well as income taxes. You must report these benefits, which your employer reports on the W-2 form (instead of a 1099-G), on your federal return.
My employer did not include my NJ state disability as 3rd party sick pay in my W2. They said don’t include it when I file. If and when the IRS finds out will I have a problem or will it be my employer?
As @KatyS said, disability payments are not taxable in New Jersey so neither you nor your employer will have a problem with the IRS.
Unemployment compensation and temporary disability (including family leave insurance benefits) received from the State of New Jersey or as third-party sick pay are not taxable. Do not include these amounts on your New Jersey return.
Refer to Income Taxability
It depends. State disability insurance is taxable if paid as a substituture for unemployment insurance. It maybe taxable to federal but non-taxable to state. There are some disability benefits that are not taxable such as workers compensation or VA disabiltty. You may contact your local EDD for a copy of the form, if any, or visit the website.
i think I am in the same boat. Did you find problem for your solution? Even I haven't received it in 1099G
Disability payments are not taxable on your NJ return, according to NJ Dept. of Taxation FAQs
To exclude NJ State Disability income from your NJ return go to the Other Wage Adjustments - W2 screen while you are in the NJ return. Just enter the Description and Amount (as a negative number). [See screenshot below.]