A 1099-G form is issued by federal, state, or local government agencies in the U.S. to report certain types of payments. A U.S. expat might need a 1099-G for several reasons, depending on the type of payment received. Here’s an explanation:
1. Unemployment Compensation
- If the expat received unemployment benefits from a U.S. state or federal program, these payments are reported on a 1099-G.
- For example, if they worked in the U.S. before moving abroad and later claimed unemployment benefits, those payments would be taxable and need to be reported on their U.S. tax return.
2. State or Local Tax Refunds
- If the expat received a refund, credit, or offset of state or local taxes during the tax year, it would be reported on a 1099-G.
- This is relevant if they claimed a deduction for those state or local taxes in a prior tax year (under the itemized deduction for state and local taxes, or SALT deduction).
- The refund could be taxable if it provided a tax benefit in a prior year.
3. Government Payments
- Certain payments from U.S. government agencies, such as agricultural subsidies, disaster assistance, or other taxable grants, are reported on a 1099-G.
- If the expat is involved in farming, business ventures, or received government aid before moving abroad, these payments would need to be accounted for.
4. Foreign Tax Credit or Exclusion Considerations
- U.S. expats are taxed on their worldwide income. If they receive a 1099-G for unemployment compensation or other payments, they may be able to:
- Use the Foreign Earned Income Exclusion (FEIE) to reduce U.S. tax liability (if the income qualifies as foreign-earned).
- Claim a foreign tax credit if the same income is taxed in their country of residence.
5. Dual Tax Compliance
- If the payment reported on the 1099-G is taxable in both the U.S. and the expat’s country of residence, it’s essential for:
- Calculating and reporting the income on their U.S. tax return (Form 1040).
- Avoiding double taxation by using tax credits or exemptions under a U.S. tax treaty with the foreign country.
Why a U.S. Expat Would Need a 1099-G
- Tax Reporting: The IRS requires expats to report all worldwide income, including payments reported on a 1099-G.
- Foreign Tax Planning: To coordinate tax obligations between the U.S. and their country of residence.
- Audit Protection: Properly including 1099-G income on a tax return ensures compliance and reduces the risk of IRS audits.
