What's New for 2002?

The following changes are the result of the Economic Growth and Tax Relief Reconciliation Act of 2001.

Revised title of Form 1099-G.    Form 1099-G is retitled Certain Government Payments. Distributions of earnings from a qualified tuition program are reported on new Form 1099-Q, Qualified Tuition Program Payments (Under Section 529), not Form 1099-G.

Backup withholding rate.    The backup withholding rate is reduced to 30% for reportable payments made in 2002 and 2003.

An Item To Note

In addition to these specific instructions, you should also use the 2002 General Instructions for Forms 1099, 1098, 5498, and W-2G. Those general instructions include information about:

• Backup withholding
• Magnetic media and electronic reporting requirements
• Penalties
• When and where to file
• Taxpayer identification numbers
• Statements to recipients
• Corrected and void returns
• Other general topics

You can get the general instructions from the IRS Web Site at www.irs.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Specific Instructions for Form 1099-G

File Form 1099-G, Certain Government Payments, if you made certain payments as a unit of a Federal, state, or local government.

Statements to Recipients

If you are required to file Form 1099-G, you must provide a statement to the recipient. Furnish a copy of Form 1099-G or an acceptable substitute statement to each recipient, except as explained below under Box 2, State or Local Income Tax Refunds, Credits, or Offsets. Also, see part H in the 2002 General Instructions for Forms 1099, 1098, 5498, and W-2G.

Box 1. Unemployment Compensation

Enter payments of $10 or more in unemployment compensation including Railroad Retirement Board payments for unemployment. Enter the total amount before any income tax was withheld. If you withhold Federal income tax at the request of the recipient, enter it in box 4.

Box 2. State or Local Income Tax Refunds, Credits, or Offsets

Enter refunds, credits, or offsets of state or local income tax of $10 or more you made to recipients. If recipients deducted the tax paid to a state or local government on their Federal income tax returns, any refunds, credits, or offsets may be taxable to them. You are not required to furnish a copy of Form 1099-G or a substitute statement to the recipient if you can determine that the recipient did not claim itemized deductions on the recipient's Federal income tax return for the tax year giving rise to the refund, credit, or offset. However, you must file Form 1099-G with the IRS in all cases.

A tax on dividends, a tax on net gains from the sale or exchange of a capital asset, and a tax on the net taxable income of an unincorporated business are taxes on gain or profit rather than on gross receipts. Therefore, they are income taxes, and any refund, credit, or offset of $10 or more of these taxes is reportable on Form 1099-G. In the case of the dividends tax and the capital gains tax, if you determine that the recipient did not itemize deductions, as explained above, you are not required to furnish a Form 1099-G or substitute statement to the recipient. However, in the case of the tax on unincorporated businesses, you must furnish a Form 1099-G or substitute statement to the recipient in all cases, as this is a tax that applies exclusively to income from a trade or business. See Box 8, Trade or Business Income (Checkbox), on page G-2 and Rev. Rul. 86-140, 1986-2 C.B. 195.

If you pay interest of $600 or more on the refund, you must file Form 1099-INT, Interest Income, and furnish a statement to the recipient. For interest payments of less than $600, you may choose to enter the amount with an appropriate designation such as Interest Income in the blank box on Copy B of the Form 1099-G.

Box 3. Box 2 Amount Is For Tax Year

No entry is required in box 3 if the refund, credit, or offset is for the 2001 tax year. If it is for any other tax year, enter the year for which the refund, credit, or offset was made. Also, if the refunds, credits, or offsets are for more than 1 tax year, report the amount for each year on a separate Form 1099-G. Use the format YYYY to make the entry in this box. For example, enter 2000, not '00.

Box 4. Federal Income Tax Withheld

Backup withholding.   Enter backup withholding at a 30% rate on payments required to be reported in box 6 or 7. For example, if a recipient does not furnish its taxpayer identification number (TIN) to you, you must backup withhold.

Voluntary withholding.   Enter any voluntary Federal withholding on unemployment compensation, Commodity Credit Corporation loans, and certain crop disaster payments. If you withheld state income tax, you may label it and report it on the statement to the recipient. However, you are not required to report state withholding to the IRS.

Box 5. Blank Box

Make no entry in this box.

Box 6. Taxable Grants

Enter any amount of a taxable grant administered by a Federal, state, or local program to provide subsidized energy financing or grants for projects designed to conserve or produce energy, but only with respect to section 38 property or a dwelling unit located in the United States. Also, enter any amount of a taxable grant administered by an Indian tribal government.

Report amounts of other taxable grants of $600 or more. A Federal grant is ordinarily taxable unless stated otherwise in the legislation authorizing the grant. Do not report scholarship or fellowship grants. See Scholarships in the Instructions for Form 1099-MISC.

Box 7. Agriculture Payments

Enter USDA agricultural subsidy payments made during the year. If you are a nominee that received subsidy payments for another person, file Form 1099-G to report the actual owner of the payments, and report the amount of the payments in box 7.

Box 8. Trade or Business Income (Checkbox)

If the amount in box 2 is a refund, credit, or offset attributable to an income tax that applies exclusively to income from a trade or business and is not a tax of general application, enter an X in this box.

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