Were New Jersey State employee Sick Leave Injury payments excluded like workers' compensation, or taxable as wages?

Plain-English summary

New Jersey treated State Sick Leave Injury benefits as taxable salary continuation, not as excluded workers' compensation payments.

SLI provided a medically disabled State employee with full salary for up to 12 months after a work-related injury or illness. Workers' compensation instead provided wage replacement calculated under a compensation schedule and not necessarily the employee's full salary.

The TAM relied on In the Matter of Dykas and In the Matter of Bennett to explain that SLI stabilized and continued income; it did not compensate the employee for the injury itself. SLI was also reduced when the employee received workers' compensation or disability benefits.

Because SLI was wage continuation or “sick pay,” it fell within taxable wages under N.J.S.A. 54A:5-1(a), rather than the workers' compensation exclusion in N.J.S.A. 54A:6-6.

State employees receiving SLI therefore had to report it as wages on the New Jersey Gross Income Tax return.

What this means for you

State employees

Do not treat SLI payments as tax-exempt workers' compensation merely because the illness or injury was work-related.

Payroll teams

The TAM classified SLI as taxable wage continuation and distinguished it from compensation paid under the Workers' Compensation Act.

Tax preparers

Identify the legal program making the payment. SLI and workers' compensation had different New Jersey income-tax results.

Common questions

Q: Were SLI benefits workers' compensation?
A: No. The TAM treated them as a different salary-continuation benefit.

Q: Why were SLI benefits taxable?
A: They continued full salary and were not compensation for the injury itself.

Q: How long could SLI continue salary?
A: Up to 12 months under the program described in the TAM.

Q: Where were the payments reported?
A: As wages on the recipient's New Jersey Gross Income Tax return.

Citations and references

• N.J.S.A. 11A:6-8 — Sick Leave Injury benefits
• N.J.A.C. 4A:6-1.6 and 1.7 — SLI implementation
• N.J.S.A. 34:15-1 et seq. — Workers' Compensation Act
• N.J.S.A. 54A:6-6 — workers' compensation exclusion
• N.J.S.A. 54A:5-1(a) — taxable wages
• In the Matter of Dykas, 261 N.J. Super. 626, 619 A.2d 660 (App. Div. 1993)
• In the Matter of Bennett, 335 N.J. Super. 518, 762 A.2d 1070 (App. Div. 2000)

Source

• Landing page: https://www.nj.gov/treasury/taxation/tam-pubs.shtml
• Original PDF: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam15.pdf

Original ruling text

Sick Leave Injury (SLI) Payments Made Under the State of New
Jersey Benefit Program
TAM 2011-15 – Issued May 3, 2011
Tax: Gross Income Tax
Sick Leave Injury (SLI) payments are made pursuant to N.J.S.A. 11A:6-8 of the Civil Service Act, as
implemented by N.J.A.C. 4A:6-1.6 and 1.7. SLI is defined as the granting of time and the
provision for monetary compensation to a New Jersey State employee due to a medically
verified disability resulting in injury/illness sustained as a direct result of employment.
SLI payments differ from payments made pursuant to the New Jersey Workers’ Compensation
Act (WCA). N.J.S.A. 34:15-1 et seq. The essential difference is that payments made under the
WCA are wage replacement, while SLI benefits provide wage continuation for a period up to 12
months.
Workers’ compensation payments are considered wage replacement, meaning they are based
on a schedule of compensation calculated on a rate of an employee’s weekly wage depending
on the injury sustained, and not on the employee’s full salary. SLI payments are wage
continuation, meaning that an employee receives his or her full salary for up to a year from the
date of the injury. SLI payments do not constitute compensation for actual injury sustained by
the employee. Also, as provided in the SLI statute, if an employee is awarded workers’
compensation or disability benefits, the SLI payments are reduced by the amount of such
workers’ compensation or disability benefits.
The courts in In the Matter of Dykas, 261 N.J. Super. 626, 619 A.2d 660 (App. Div. 1993) and In
the Matter of Bennett, 335 N.J. Super. 518, 762 A.2d 1070 (App. Div. 2000) have distinguished
between SLI and WCA benefits. The Court in In the Matter of Dykas stated that, “It is clear that
SLI benefits are designed only for the purpose of providing income stabilizing and continuation
for a designated period of time to employees with work-related injuries or illnesses; the benefits
are not intended to compensate employees for their injuries or illnesses.” In the In the Matter of
Bennett decision, the Court opined that “sick leave injury benefits do not come from the same
mold of remedial social legislation as do workers’ compensation benefits.”
Based upon the holdings in these cases, SLI benefits do not constitute payments in the nature of
workers’ compensation. Rather, SLI benefits are properly viewed as salary continuation and not
compensation for work-related injuries. The distinction between wage replacement and wage
continuation triggers different treatment under the New Jersey Gross Income Tax Act. While
payments made pursuant to the workers’ compensation law are excluded from income pursuant
to N.J.S.A. 54A:6-6, wage continuation is taxable in accordance with N.J.S.A. 54A:5-1(a), which
consistently has been held to include “sick pay.”
Therefore, wage compensation provided under the New Jersey Sick Leave Injury (SLI) Program is
taxable for New Jersey Gross Income Tax purposes. State employees who receive SLI payments
must include them in wages on their New Jersey Gross Income Tax return.

Page 1

Note: A Technical Advisory Memorandum (“TAM”) is an informational statement of the law,
regulations, or Division policies. It is accurate on the date issued. Subsequent changes in the law
or regulations, judicial decisions or changes in Division policies could affect the validity of the
information presented in a TAM.

Page 2