Do You Have Employees Who Were Out on Disability in 2019 and Received 3rd Party Sick Pay from New Jersey?

If so, do not finalize your payroll until you receive the forms from New Jersey because the pay should be included on the employees W-2.

Tax reporting requirements for Temporary Disability and Unemployment Insurance

An Internal Revenue Service ruling states that New Jersey Temporary Disability benefits must be treated as third-party sick pay. This designation requires Social Security (FICA) withholdings and matching employer FICA contributions on the portion of benefits financed by the employer’s experience rating. These taxable benefits must also be reported as wages for federal income tax purposes. The chargeable employer is responsible for issuing W-2 forms to employees who receive third-party sick pay.

As required by federal regulation, the Division of Temporary Disability Insurance mails benefit payment information to chargeable employers when a benefit check is issued. Additionally, a year-end summary of all payment activity is mailed to employers by January 15. The year-end statement provides all the required information for inclusion on a W-2 form.

Disability During Unemployment benefits and Unemployment Insurance benefits are also taxable for federal income tax purposes. Individuals who collect these benefits will receive a 1099 form directly from the Department of Labor and Workforce Development listing the taxable income and any withholding.

Temporary Disability benefits and Unemployment Insurance benefits are not subject to the New Jersey state income tax. 

Please click here for more information or to obtain a copy of the forms. To stay updated on all tax news, please visit our Tax Resources page on our website.

Questions? Contact one of our tax professionals at (973) 298-8500 or