PFL benefits are paid by the state so the 1099g is appropriate. (Assuming that benefit repayment to the employer is legal in that state) the employer should have reduced the employees earnings accordingly.

I think I would start by going to the employer, and explaining the double taxation …..best case would be as corrected w2… 

there used to be a worksheet and form for correct in W-2s in Pro Series, but I haven’t used it in years and have always been reticent to change the information reflected on the W-2 on the 1040. It will most likely result in a CP letter.

does the employer have an hr dept?   One can only hope