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.
There are twelve boxes on the form that may have amounts or other information.
Box 1 of the 1099-G Form shows your total unemployment compensation payments for the year.
Box 2 indicates the amount of refund, offset, or credit of state or local income tax.
Box 3 of the form will indicate the relevant tax year for the refund or credit in Box 2.
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 8 of your 1099-G, if checked, indicates that the amounts reported in box 2 relate to a trade or business you operate.
Box 9 shows the market gain on certain types of loans only available to farmers.
Taxable unemployment compensation
Box 1 of the 1099-G Form shows your total unemployment compensation payments for the year. Form 1040 includes a separate line for unemployment compensation in the income section. Generally, you must include in taxable income any unemployment compensation from a state government. The amount from box 1 needs to be included in your income, 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 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 2017 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 2018.
- However, let’s say you prepared your 2016 federal income tax return and took a deduction for state income taxes of $5,000 that reduced your federal taxes.
- When you prepare your 2018 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 2018.
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, it is not necessary to report the amounts in box 2 since these state taxes did not reduce your federal tax for that year.