I received unemployment last year. Now they want it back!?

You got free money for doing nothing, and now you're mad that you owe tax on it?

yes the government lent you the money , now its time to pay it back  . just pay up what you owe .

yeah but that's only because they're greedy so don't worry about it too much

Your unemployment income was TAXED AS INCOME.  It's not the STATE wanting it back. The unemployment you received came from your state, and your TAX is to the Federal Government. Not the same entity at all. Sorry you had to pay tax, but it was clear enough when you received unemployment income that it would be taxed as income--it comes with such notices. 

They don't "want it back".  They want you to pay the tax on it, just like they'd want you to pay the tax on your income from work or investments if you had any.

If you were unemployed all year, then it's probably too late to mitigate any of it now.  If you were employed part of the year, then you could contribute some money to an IRA (but it's limited to your "earned" income, which means from working, and does not include unemployment) and designate the contribution as being for last year, and then you'd probably (but not definitely) qualify for a deduction for the IRA contribution.

If they say you were overpaid, then you were overpaid.  That means you owe it, and if you do not pay it back promptly, they will add a penalty and interest. 

Turbo tax needs to be updated to reflect current legislation.

Unemployment is taxable, at the same rate as income from employment. Because you didn't have anything withheld, you have to pay the taxes now. You SHOULD have requested withholding, or set aside enough to pay the taxes.

Wait to file.  There is a provision in the new stimulus bill to exempt the first $10,200 of unemployment.  If that gets signed, it will take a week or two for the software to update.  Update your software and recalculate your return once that happens. It should solve a lot of your problem.  Whether your state goes along with it is another issue.  The reason that you currently owe is that you didn't have enough tax withheld from your unemployment.

Anyone getting unemployment has to pay taxes on what they got. Someone should have told you.