My wife recently filed for NJ disability benefits while recovering from hip surgery. Her employer deducts for NJ SDI. The payments she received did not deduct any NJ state of Federal withholding taxes. Are the disability benefits received from N.J. exempt from federal and state withholding taxes?

Contact NJ SDI to be sure, but if YOU paid the disability premiums, then the disability coverage is tax-free.

If your employer paid the premiums, then the coverage is taxable income.

I suspect it is probably part tax-free, part taxable.