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Is Money the State Sends You Taxable?

Your state government sent you some money. That sounds good.

So, is it taxable? Don’t know?

Okay. Let’s figure it out.

You have received form 1099-G because you received a payment from your state. That payment could be for a number of reasons:

  • Unemployment
  • Tax Refund from prior year
  • RTAA Payments
  • Taxable Grants
  • Agriculture Payments
  • Market Gains on repayment of CCC loans

Box 1 – If the answer is unemployment, you definitely must report that as income on your federal tax return. If you were wise enough to have had federal and state taxes withheld, then that will also show up on the 1099G, in Box 4 and Boxes 10a, 11 and 12, and should be added to taxes paid in on your federal and state returns. State requirements for reporting may be different. Refer to your tax professional to find out.

Box 2 – When you filed your taxes last year, you got a state refund. Why does that matter? Because if you itemized your taxes last year (used Schedule A) and used your state withholding as a deduction (instead of deducting sales taxes) then all or part of that refund might be considered income this year. Why? If you use an amount as a deduction, and benefit from that by paying less tax, and then also get that same amount as a refund, then you’re “double-dipping” and the IRS doesn’t go for that. So, you have to do the calculation to add all or part of it back as income (ask your tax professional if you are unsure how to go about this.) If you didn’t itemize last year, then you can throw this away, because you don’t need it.

Box 5 – Did you receive RTAA (Reemployment Trade Adjustment Payments)? Those are wage subsidy payments made by the state when an employee 50 years of age or older has lost a job due to trade issues and is later reemployed at a lower wage. This program provides a partial subsidy for two years, and because it is intended to replace wages, it is taxable.

Box 6 – Amounts that appear here are generally for energy cost subsidy payments for private residences or funds for projects to conserve energy. This might also represent certain taxable federal grants above $600.

Box 7 – Most Agricultural Program payments received must be reported on schedule F, Part 1.  There are some payments you can exclude, from certain cost-sharing conservation programs.  Report the full amount of any other payments received, even if you refunded or refused some payments. You can claim the reduction elsewhere on the schedule F.

Box 9 – This amount represents the market gain associated with the repayment of a CCC loan, whether it was repaid with cash or with CCC certificates.

As with any tax information, if you are unsure of how something applies to your tax situation, you should contact a tax professional.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

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