Key Takeaways
- Form 1099-G is issued by a government agency to inform you of funds you have received that you may need to report on your federal income tax return.
- Box 1 of the 1099-G Form shows your total unemployment compensation payments for the year, which generally need to be reported as taxable income on Form 1040.
- Box 2 of Form 1099-G shows the state or local income tax refunds, offsets, or credits you received, but these amounts typically only need to be reported if you took a federal deduction for paying those taxes in a prior year and that deduction actually reduced your federal taxes.
- The additional boxes on the form may show amounts you received from other government agencies, including taxable grants or payments from the Department of Agriculture.
If you received a 1099-G Form this year from a government agency, you may need to report some of the information it contains on your tax return. The most common uses of the 1099-G is to report:
- unemployment compensation
- state or local income tax refunds you received that year
Taxable unemployment compensation
Generally, you must include in federal taxable income any unemployment compensation from a state government.
- Box 1 of the 1099-G Form shows your total unemployment compensation payments for the year.
- Schedule 1 for Form 1040 includes a separate line for unemployment compensation in the income section.
- It is not necessary to attach the 1099-G to your tax return.
State tax refunds
When you receive a refund, offset, or credit of state or local income tax, that amount appears in box 2 of the 1099-G form. However, you don't necessarily have to report this amount on your federal tax return or pay additional federal taxes.
You only need to report it as federal income if you took a federal deduction for paying those taxes in a prior year and that deduction actually reduced your federal taxes. Box 3 of the form will indicate the relevant tax year.
1099-G box 2 example
Suppose your state requires your employer to withhold state income taxes from your salary and wages. If you itemize your deductions on Schedule A instead of taking the Standard Deduction, the IRS allows you to deduct the state income taxes you paid.
Often, the total amount of state income tax withheld from your pay will exceed the amount of tax you’re actually responsible for paying at the end of the year.
For example, suppose $5,000 is withheld from your 2023 wages for state income tax.
- After preparing your state income tax return, you find you only owe $3,500.
- The state should send you a refund of $1,500 in 2024.
- ($5,000 withheld - $3,500 owed = $1,500 refunded)
Also, let's say you prepared your 2023 federal income tax return and took a deduction for state income taxes of $5,000 that reduced your federal taxes.
- When you prepare your 2024 tax return, you'll likely need to report some or all of the $1,500 refund as income since you took a deduction for the full $5,000 but then got $1,500 back in 2024. If your 2023 federal tax return benefited from the entire $5,000 is state taxes, then you would need to include the entire $1,500 refund. However, if you only benefitted from a portion of the $5,000 state tax deduction then you would only need to include a portion of the $1,500 refund.
It is not necessary to report the amounts in box 2 if, in the previous year, you:
- didn't benefit from deducting state income tax
- took the Standard Deduction instead of itemizing your deductions
If box 8 of your 1099-G is checked, it indicates the amounts reported in box 2 relate to a trade or business you operate.
TurboTax Tip:
Be sure to review Form 1099-G carefully. The government reports that organized groups submitted fraudulent claims to receive pandemic-related unemployment benefits. Due to fraud, Box 1 might include funds you did not claim or exceed the funds you actually received.
Other 1099-G boxes
There are nine other boxes on the form that may show amounts or other information.
- Boxes 4, 10a, 10b and 11 report information about the federal, state and local income taxes withheld from any government payments you received.
- Box 5 reports certain trade adjustments.
- Box 6 shows any taxable grants you receive from government agencies.
- Box 7 shows any payments you receive from the Department of Agriculture.
- Box 9 shows the market gain on certain types of loans only available to farmers.
Not all 1099-G forms look alike since each state can issue their own version of the forms. So, the 1099-G form that you receive from your state might not include all of the boxes listed above.
TurboTax will guide you through selecting the correct information from Form 1099-G.
1099-G and unemployment fraud
During the pandemic, federal and state governments significantly increased the amount of workers eligible for unemployment insurance benefits and the amount of those benefits in response to the pandemic. Unfortunately, unemployment fraud also increased, with organized groups using stolen data to steal identities and submit fraudulent unemployment insurance benefits claims.
How can you determine if you have fallen victim to a fraudulent unemployment claim?
Some indicators are:
- You received a notice from your employer indicating that a request for information about an unemployment claim in your name was received while you were still employed
- You received mail from a government agency about an unemployment insurance claim or payment that you didn’t submit or received
- You received a Form 1099-G reporting in Box 1 unemployment insurance benefits that you never received or an amount greater than what you actually received during the year.
Make sure you double-check your Form 1099-G, even if you did claim and receive unemployment insurance benefits. The amount showing in Box 1 might be overstated if your identity was stolen and someone submitted a fraudulent claim on your behalf.
If you were a victim of unemployment benefits fraud, it’s important that you take immediate steps to report this to the state where it occurred and correct any tax forms you may have received due to a fraudulent claim. The US Department of Labor has a website for victims of unemployment fraud that provides key steps to help victims of unemployment fraud.
If you’ve confirmed you are a victim of unemployment fraud, you might be wondering how to file your taxes if you have a tax form showing income that you never received, but that you know was also reported to the IRS.
- In this case the IRS encourages taxpayers to submit an accurate tax return, reporting only the income they received, even if they have not yet received a corrected 1099-G from the state.
- Then contact the state agency that issued the Form 1099-G immediately and request a revised Form 1099-G showing you did not receive these benefits.
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