Get your taxes done using TurboTax

You have to enter the 1099-G in your tax return and you have to pay tax on the full amount shown on the 1099-G. You did receive the income, and you got to keep it all. The fact that it was more than you should have received does not make it non-taxable. You pay tax on all of the income that you received, whether or not it was the correct amount.