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:
state or local income tax refunds you received that year
Taxable unemployment compensation
Generally, you must include in 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.
The amount from box 1 needs to be included in your income.
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 2019 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 2020.($5,000 withheld – $3,500 owed = $1,500 refunded)
However, let's say you prepared your 2019 federal income tax return and took a deduction for state income taxes of $5,000 that reduced your federal taxes.
When you prepare your 2020 tax return, you'll need to report the $1,500 refund as income since you took a deduction for the full $5,000 but then got $1,500 back in 2020.
It is not necessary to report the amounts in box 2 if, in the previous year, you:
deducted state and local sales tax instead of state income tax on your Schedule A, or
took the standard deduction instead of itemizing your deductions.
This is because these state taxes did not reduce your federal tax for that year.
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 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.
1099-G and unemployment fraud
During 2020, 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 unemployment identity theft 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 Form 1099-G state issuing agency immediately, and request a revised Form 1099-G showing you did not receive these benefits and make sure you don’t report them on your tax return.
Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes.
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