A Form 1099-G arrives from a state agency, and it raises two questions: is this money taxable, and where does it go on my return? The answer depends on the box. Unemployment compensation is generally taxable. A state tax refund usually is not, unless you itemized.
This guide explains each box, shows where unemployment compensation and withholding go on Form 1040, sets out the tax benefit rule for state refunds in plain terms, and covers what to do about a form that shows benefits you never received. It follows the IRS form instructions and Publication 525.
The IRS titles the form "Certain Government Payments". The boxes you are most likely to see are below. The form is sent to you by the government agency that made the payment, usually a state unemployment office or a state tax agency.
| Box | What it shows | What to do with it |
|---|---|---|
| Box 1 | The total unemployment compensation paid to you in the calendar year | Combine the box 1 amounts from all Forms 1099-G and report the total as income on the unemployment line of your return |
| Box 2 | Refunds, credits or offsets of state or local income tax you received | Taxable only if you deducted that state or local tax on Schedule A (Form 1040) |
| Box 3 | The tax year the box 2 amount is for | Tells you which year's deduction it relates to |
| Box 4 | Backup withholding or withholding you requested on unemployment compensation | Include it on your return as tax withheld |
| Box 6 | Taxable grants from a federal, state or local government | Taxable |
| Box 10 | Amounts paid from a governmental paid family leave program | See the form instructions |
Generally, you must include in income all unemployment compensation you receive. That covers state unemployment insurance benefits and the other programs listed in IRS Topic 418. You can choose to have federal income tax withheld from your unemployment compensation, and if you do not, you may be required to make quarterly estimated tax payments (see our estimated tax guide).
Report the amount shown in Box 1 on line 7 of Schedule 1 (Form 1040), and include the withholding shown in Box 4 on line 25b of Form 1040 or Form 1040-SR. If you made contributions to a governmental unemployment program and received a payment from it, the payer must issue a separate Form 1099-G for that amount. If you itemize, you may deduct those contributions on Schedule A; if you do not itemize, include in income only the amount that is more than your contributions.
The line numbers above are the ones IRS Topic 418 gives for the current Form 1040; check the line numbers on the form you actually file.
| Example | Where it goes |
|---|---|
| Box 1 shows $12,000 | Line 7 of Schedule 1 (Form 1040): $12,000 |
| Box 4 shows $1,200 withheld | Line 25b of Form 1040: $1,200 counted as tax already paid |
A refund of state or local income tax is taxable only if it reduced your tax in the earlier year. Under the tax benefit rule you must include a recovery in your income in the year you receive it up to the amount by which the deduction you took for the recovered amount reduced your tax in the earlier year. If you did not itemize deductions for that year, none of the refund is taxable.
| Your situation | Is the Box 2 refund taxable? |
|---|---|
| You claimed the standard deduction for the year the refund relates to | No. IRS Pub. 525 (2025 edition), Example 29: you claimed the standard deduction on your 2024 return, received a refund of 2024 state tax in 2025, and report none of it as income |
| You itemized and deducted the state or local tax | It may be taxable, up to the amount the deduction reduced your tax; use the worksheet in the Form 1040 instructions or Pub. 525 |
| You never received it because it was credited to estimated tax or offset against a debt | Still taxable if you deducted the tax, according to the Form 1099-G instructions |
Federal income tax refunds are different: they are never included in income because they are never allowed as a deduction from income.
Criminals use stolen identities to file unemployment claims. If you receive a Form 1099-G with an inaccurate unemployment amount in Box 1, notify your state unemployment agency of the inaccuracy and request a corrected Form 1099-G. Do not report the incorrect amount on your tax return; report only the unemployment you actually received, even if the corrected form has not arrived. The IRS offers guidance for victims at its identity theft and unemployment benefits page.
IRS Form 1099-G and instructions, IRS Topic no. 418, Unemployment compensation, IRS Publication 525.