A government agency issues Form 1099-G to inform you of funds received that you may need to declare on your federal income tax return. The 1099-G tax form includes the amount of benefits paid to you for any the following programs: Unemployment Insurance (UI), Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), Extended Benefits (EB), Federal Pandemic Unemployment Compensation (FPUC), and Lost Wages Assistance (LWA).
⦁ If you get unemployment benefits from the state government, you must pay taxes on those payments. Your benefit amount will be reflected in Box 1 of your 1099-G. If you have elected to have taxes deducted from your benefits, the amount will be shown in Box 4.
⦁ If you are required to file a tax return, you will enter the amount from Box 1 as part of your income on your 1040 when preparing your return.
⦁ If the state refunds, credits, or offsets your state or local income, the amount will be stated in Box 2 of your 1099-G form. The most typical reason for a refund is an overpayment of state taxes, as seen in the example below. You may or may not be taxed on this payment. The amount is not taxable to you if you claimed the standard deduction on your previous year’s return.
⦁ If you took itemised deductions on your previous year’s return, however, all or part of your refund is taxable in the year you receive it if you also deducted state and local income taxes and obtained a tax advantage from doing so.
Box 1 of the 1099-G Form displays your total unemployment compensation payments for the year, which must be reported on Form 1040 as taxable income.
Box 2 of Form 1099-G displays the amount of state or local income tax refunds, offsets, or credits you received, although these amounts are normally only required to be reported if you claimed a federal deduction for paying those taxes in a previous year and that deduction actually lowered your federal taxes.
The form’s supplementary boxes may contain monies received from other government entities, such as taxable grants or payments from the Department of Agriculture.
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 2020 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 2021.
⦁ ($5,000 withheld – $3,500 owed = $1,500 refunded)
However, let’s say you prepared your 2020 federal income tax return and took a deduction for state income taxes of $5,000 that reduced your federal taxes. When you prepare your 2021 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 2021.
It is not necessary to report the amounts in box 2 if, in the previous year, you:
⦁ Did not benefit from deducting state income tax, or
⦁ Took the standard deduction instead of itemizing your deductions.
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.