The error actually states that the withholding amount should not be greater than the unemployment compensation amount times the individual income tax rate. This means you are only allowed to withhold the amount required to pay the state tax on your unemployment, but not any more than that.
Take the amount for your unemployment compensation and multiply it by 0.495 (which is 4.95%) and compare that number to the amount being withheld for the state. If the withholding is greater, that is what is causing the error.
You should double-check the amounts that you entered for the 1099-G to be sure everything is accurate.
@cyles99
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