Form 1099-G - Certain Government Payments

Form 1099-G - Certain Government Payments

Form 1099-G, Certain Government Payments, is provided to a taxpayer or entity that received certain payments from federal, state, or local governments. Generally, these payments are entered on the tax return and considered to be taxable income. Following are the kinds of payments and where they are reported on Form 1099-G.

Box 1 - Unemployment Compensation. Amounts reported in this box include:

  • Unemployment compensation;
  • Railroad Retirement Board payments for unemployment;
  • Payments from a contributory program that has been deemed to be essentially unemployment compensation.

See below for more information on Unemployment Compensation.

Unemployment compensation can include amounts received under the unemployment compensation laws of the United States or of a state. It includes unemployment insurance benefits and benefits paid to a taxpayer by a state or the District of Columbia from the Federal Unemployment Trust Fund. It also includes railroad unemployment compensation benefits, disability benefits paid as a substitute for unemployment compensation, trade readjustment allowances under the Trade Act of 1974, and unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974.

In the individual tax return, unemployment compensation is included in gross income reported on Form 1040. If the taxpayer received unemployment compensation during the year, they should have received Form 1099-G after the end of the year, showing the amount they were paid.

Entering unemployment compensation

To enter unemployment compensation in Software, from the Federal Section of the tax return (Form 1040), select:

  • Income
  • Form 1099-G Box 1
  • Add or Edit a 1099-G
Repayment of Current Year Unemployment

If the taxpayer repaid any current year unemployment benefits, e.g., due to them being later denied or due to more being paid out than they were entitled to, the amount repaid is entered separately from Form 1099-G.

To enter repaid current year unemployment compensation in Software, from the Federal Section of the tax return (Form 1040), select:

  • Income
  • Form 1099-G Box 1
  • Repayment of Unemployment - Enter the amount repaid.

The total of Form(s) 1099-G minus the amount repaid will flow to Schedule 1, with "REPAID" and the amount printed on the same line.

Repayment of Prior Year Unemployment

If the taxpayer repaid in the current year unemployment compensation that had been included in income in an earlier year, how the repayment is treated in the tax return depends on the amount.

  • If the amount repaid was $3,000 or less, it cannot be deducted anywhere in return.
  • If the amount repaid was more than $3,000, the taxpayer can either calculate a claim of right tax credit or include the repaid amount as an itemized deduction, whichever is most beneficial to them. 

Box 2 - State or local income tax refunds, credits, or offsets. Amounts reported in this box include:

  • Refund of state or local income taxes from last year's tax return;
  • Refunds or carryforward credits of overpayments of tax due to refundable state tax credits and incentive payments;
  • Refund, credit, or offset of tax on the net taxable income of an unincorporated business;
  • Refund, credit, or offset of tax on dividends or tax on capital gains if the taxpayer itemized deductions.

If the taxpayer itemized their deductions on their federal return, including deducting state or local income taxes, the refund may be considered taxable income.

See below for more information on entering state and local refunds.

 refund of state or local income tax paid may, in total or part, be considered income in the year that it is received, provided the taxpayer claimed the taxes paid as an itemized deduction on the prior year return. The taxable amount of the state or local refund includes:

  • Any part of a refund from the taxpayer's prior year state or local return that they were entitled to receive in the current year but chose to apply to their current year estimated tax payments instead.
  • Any state or local refund that the taxpayer would have received in the current year but was garnished by the state or federal government to satisfy another obligation such as back taxes, student loans, etc.

None of the state or local tax refund is taxable if, in the year the tax was paid, the taxpayer either (a) did not itemize deductions or (b) elected to deduct state and local general sales taxes instead of state and local income taxes.

If a taxpayer received a refund, credit, or offset of state or local income taxes, they should receive a Form 1099-G. If the refund was for a tax that was paid in year prior to the current tax year and was deducted as state and local income taxes on the year prior to the current year's tax return's Schedule A, some or all of the refund may be taxable. A worksheet is provided in the software to determine the amount that is included in income. Also, review the State, and Local Income Tax Refund Worksheet found in the Instructions to Schedule A to determine the taxable portion of the refund.

 

Exception. However, when certain exceptions exist, the taxpayer may be required to treat the state or local tax refund as an Itemized Deduction Recovery in Publication 525 instead of using the worksheet. The exceptions are the following:
  • The refund is for a tax year other than the year prior to the current year.
  • The refund is for a tax other than an income tax refund, such as a sales or real property tax refund.
  • QBI Deduction exceeds AGI less Deductions.
  • The taxpayer had taxable income in the prior year but no tax due because of the 0% tax rate on net capital gains and qualified dividends.
  • The taxpayer's prior year state and local tax refund is greater than the prior year state and local income tax deduction minus the amount that the taxpayer could have deducted as the prior year state and local sales tax.
  • The taxpayer made estimated state and local income tax payment for the prior year in the current year.
  • The taxpayer was subject to AMT in the year prior to the current year.
  • The taxpayer could not claim all of the credits they were entitled to receive in the prior year prior because the total credits exceeded the tax liability in that prior year.
  • The taxpayer was claimed as a dependent by someone else in the prior year.
  • The taxpayer received the refund in the prior year by filing jointly with a person that they are not filing a joint return in the current year.

To input state and local refunds from Form 1099-G, from the Federal Section of the Tax Return select:

Box 5 - Reemployment Trade Adjustment Assistance (RTAA) payments.
RTAA payments of $600 or more are reported in Box 5. These benefits are paid by the state as supplemental pay to re-employed workers. Form 1099-G Box 5 income is reported as Other Income on Form 1040

See below for more information on RTAA.

Reemployment Trade Adjustment Assistance (RTAA) supplements wages for eligible workers over the age of 50, paying up to 50% of the difference in wages for new employment that pays less than their trade-affected employment.

RTAA is treated as a cash benefit and not earned income. An individual who receives RTAA payments will be issued a Form 1099-G with an amount in Box 5.

To enter RTAA payments in Software from the Federal Section of the tax return (Form 1040), select:

  • Income
  • Other Income
  • Other Income Not Reported Elsewhere - If filing MFJ, indicate if the income is for the taxpayer or the spouse.
    • Other Income Description - In the drop down menu select "Other Income".
    • Description of other Income - Enter "RTAA".
    • Amount of other income - Enter the amount.
Box 6 - Taxable grants.

Grants of $600 or more are reported in this box and include:

  • Grants for subsidized energy financing.
  • Grants for projects that produce or conserve energy.
  • Taxable grants administered by an Indian tribal government.
  • Grants to under-represented business owners (i.e. women-owned, minority-owned.)

Taxable grants are part of Other Income on Form 1040 unless the item relates to an activity for which the taxpayer is required to file Schedule C, E, or F or Form 4835. In such situations, the taxpayer would instead report the taxable or deductible amount allocable to the activity on that schedule or form. Note that scholarships and education grants are not reported on Form 1099-G.

See below for more information on where to report the receipt of a taxable grant.

A taxpayer may received a taxable grant from a government agency such as the Small Business Administration (SBA) or from a nonprofit organization. The grant doesn't require repayment since it's not a loan, but the taxpayer does need to account for how the grant was used and does need to report it on their annual tax return.

If the grant relates to activity being reported on Schedules C, E, or F, or Form 4835, then it will be reported on the form to which it relates, otherwise it is reported as Other Income on Schedule 1.

In ProWeb, you will need to make two or three entries related to a taxable grant:

  • Enter the 1099-G indicating the Box 6 amount. This amount doesn't carry to any federal form or schedule but is used for state tax returns as needed.
  • Enter the amount in the appropriate form or schedule to which the income belongs.
  • Enter a preparer note explaining how it was handled if not treated as other income.

Step 1: Enter the 1099-G

From the Federal Section of the tax return (Form 1040) select:

  • Income
  • Form 1099-G Box 1
  • Add or Edit a 1099-G - Enter the payer information.
  • Taxable Grants - Enter the amount in Box 6.
  • Enter state information if it's on the form.

Step 2: Enter the grant amount where it belongs in the return

Enter the grant income in the form or schedule where it belongs.

Schedule C

If the grant relates to the taxpayer's business activity normally reported on Schedule C, include the grant on that schedule as Other Income. From the Federal Section of the tax return (Form 1040) select:

  • Income
  • Schedule C, Profits or Loss from Business
  • Income
  • Other Income

Schedule E

A landlord who receives rental payments from a nonprofit assisting tenants treats those payments as rental income. To enter these receipts in Schedule E, from the Federal Section of the tax return (Form 1040) select:

  • Income
  • Schedule E
  • Rent and Royalty Basic Information
  • Rental Payments Received - Include the total grants with other rental payments.

Schedule F

If the grant relates to the taxpayer's business activity normally reported on Schedule F, include the grant on that schedule as Other Income. From the Federal Section of the tax return (Form 1040) select:

  • Income
  • Schedule F
  • Income
  • Other Income

Form 4835

A grant from a government program or nonprofit for the rental of farmland is reported on Form 4835. From the Federal Section of the tax return (Form 1040) select:

  • Income
  • Other Income
  • Farm Rental Income and Expenses
  • Other income

Other Income

If the grant is unrelated to a taxpayer's business, enter it as other income. From the Federal Section of the tax return (Form 1040) select:

  • Income
  • Other Income
  • Other Income Not Reported Elsewhere
  • Other Income Description - Select Other Income
  • Amount of other income - Enter the amount of the grant.

Step 3: Enter a Preparer Note

From the Federal Section of the tax return (Form 1040) select:

  • Miscellaneous Forms
  • Explanations
  • Preparer Notes - Enter a title, e.g., Form 1099-G taxable grants, and a note explaining how it is being handled in the return.

Box 7 - Agricultural payments.
The amount in this box is typically a subsidy paid to farmers or fishers and is typically reported on Schedule F.

See also the IRS instructions for Schedule F and IRS Publication 225 if needed.


Box 8 - Trade or Business Income.
An X in this box indicates that the amount in Box 2 relates exclusively to a trade or business.

Box 9 - Market Gain.
The amount in this box represents the market gain associated with the repayment of a Commodity Credit Corporation (CCC) loan. The CCC is a government-owned and operated entity that was created in 1933 to stabilize, support, and protect farm income and prices. This amount is reported as income in Schedule F.

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