Unemployment compensation is included in gross income. Taxpayers must report unemployment compensation on Form 1040, Form 1040A, or Form 1040EZ. Unemployment compensation generally includes any 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.
If a taxpayer received unemployment compensation during the year, they should receive Form 1099-G showing the amount they were paid. Any unemployment compensation received during the year must be included in their income, unless they contributed to the fund.
Repayment of Current Year Unemployment
If unemployment benefits were paid and then later denied, or more benefits were paid out than the taxpayer or spouse was entitled to, the benefits must be repaid. If the taxpayer repaid current year unemployment compensation that was received in the current year, enter the amount that was repaid. The amount will be subtracted from the amount of unemployment compensation entered on the previous menu.
The repayment amount will print on the unemployment compensation line of Form 1040.
Repayment of Prior Year Unemployment
If the taxpayer had to repay an amount that was included in income in an earlier year, the amount may be deducted as an itemized deduction, or if the amount that was repaid is more than $3,000, a credit may be taken in the year it was repaid.
To enter Unemployment Compensation – From the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Unemployment Compensation (1099-G Box 1)
To Enter Unemployment Repayment – From the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Unemployment Compensation (1099-G Box 1)
- Select the ‘Other’ button on the Form 1099-G Menu
- Enter the amount of repayment for Current Year Unemployment or Prior Year Unemployment
To Enter Repayment of Prior Year Unemployment Compensation
Repayment of $3,000 or less
- Itemized Deductions Menu
- Other Miscellaneous Deductions
- Repayment under Claim of Right – Enter the amount that was repaid for a prior year.
Repayment over $3,000
- Figure the amount of tax due or refund amount claiming an itemized deduction for the repaid amount.
- Figure the amount of tax due or refund amount claiming a credit for the amount repaid:
- Figure the amount due or refund amount without deducting the repaid amount.
- Refigure the tax from the earlier year without including in income the amount that was repaid this year.
- Subtract the tax from the previous step from the tax amount filed in the earlier year. This is the amount of the credit.
- Subtract the credit from the previous step from the tax for the current year figured without the deduction.
- File the return using the method that is most beneficial to the taxpayer.
NOTE: This is a guide on entering Unemployment into the Keystone Tax Solutions Pro program. This is not intended as tax advice.
Additional Information: