The most common use of the 1099-G is to report unemployment compensation as well as any state or local income tax refunds you received that year.
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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 use of the 1099-G is to report unemployment compensation as well as any state or local income tax refunds you received that year.
Taxable unemployment compensation
You must pay taxes on any unemployment compensation from your state government. Box 1 of the 1099-G Form shows your total unemployment compensation payments for the year. Regardless of whether you file a 1040, 1040A or 1040EZ, the form includes a separate line for unemployment compensation in the income section. You must report the amount from box 1 on this line, but 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 taxes. You only need to report it if you took a deduction for paying those taxes in a prior year. 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.
In many cases, however, the total amount of state income tax withheld will exceed the amount of tax you’re actually responsible for paying.
- For example, suppose $5,000 is withheld from your 2014 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 2014.
- However, let's say you prepared your 2014 federal income tax return and took a deduction for state income taxes of $5,000.
- When you prepare your 2015 tax return, you'll need to report the $1,500 refund as income since the deduction you took in the prior year was too much.
If in the previous year you chose to deduct state and local sales tax instead of state income tax on your Schedule A, or chose the standard deduction, it is not necessary to report the amounts in box 2 since these state taxes would not be refunded by your state or local government. 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.
Other 1099-G boxes
There are nine other boxes on the form that may have 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.
TurboTax will guide you through selecting the correct information from Form 1099-G.