1099-R do I need to amend 2019 taxes?

[confusedhelp]

I made excess 401K contribution in 2019, but was able to withdraw the excess and interest earned before the July2020 filing deadline. I was advised to report both the excess deferral and the interest as other earned income on my 2019 tax returns, which I did on my own using turbotax. I entered them with the description of "2019 Excess 401K Deferrals" and  "Earnings on 2019 Excess 401k Deferral"

Now I received two 2020Form 1099-R for the excess (code P) and interest earned (code 8). I don't have time this year for taxes so I went to a tax preparer/expert. He reported both the two 1099-R for my 2020 tax returns and said I needed to amend my 2019 tax returns to remove the excess and interest from "other earned income" because I wasn't suppose to report it on my 2019 returns.

I came across a posting reply by @DanaB27 saying that if I reported the excess in 2019 then that 1099-R with code P can be ignored for my 2020 tax returns but to still report the 1099-R with code 8.

@DanaB27 if you're reading this - I did put the description as 2019 Excess 401K deferral, so did I just made things even more complicated because your post said to be "2020 Excess"

Do I amend 2019 tax returns to remove the excess(code P) and interest(code8) from "other earned income" or do I ask my tax preparer to amend the 2020 tax return to not include the 1099-R excess(code P) because I had already report it? And how about the interest(code 😎 - do I need to amend my 2019 returns to remove it and have it reported with the 2020 returns or can I ignore both 1099-R for 2020 returns since I reported both in 2019 returns?

Please HELP, it's a lot going on.

[DanaB27]

Yes, you will have to amend the 2019 return to remove the earnings from your 2019 tax return. Earnings will be taxable in the year of distribution, in your case in 2020 shown on the 1099-R with code 8. Please see How do I amend my 2019 return?.

The 2020 1099-R with code P belongs on the 2019 return, you reported it correctly as 2019 Excess 401(k) Deferrals. Therefore, you do not need to amend this part.

According to 2020 Publication 525 page 11:

"If the distribution was for a 2019 excess deferral, your Form 1099-R should have code P in box 7. If you didn't add the excess deferral amount to your wages on your 2019 tax return, you must file an amended return on Form 1040-X. If you didn't receive the distribution by April 15, 2020, you must also add it to your wages on your 2020 tax return."

Therefore, you would only have to report it on the 2019 tax return if you received the distribution by April 15th 2020. But since you received it after April 15, 2020 it will have to be included in 2020 as well.

"Excess distributed to you. If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, don't include it in income again in the year you receive it. If you receive it later, you must include it in income in both the year of the deferral and the year you receive it" (Pub 525, page 11).

[confusedhelp]

@DanaB27 Thanks for the reply especially since the May17 deadline is fast approaching.

This part is where I'm still a bit confused if you can help please clarify. My excess(code P) and earnings(code 😎 were distributed to me exactly on 4/20/20, but accordingly to my 401K plan administrator I would meet the required deadline due to the filing being extended to 7/15/20.

Am I understanding you correctly that:

1. I need to amend my 2019 returns and remove the earnings(code 😎 only, but I leave the excess deferal(code P) as reported in the section other earned income.

2. My tax preparer E-filed my 2020 returns a few weeks ago and reported both excess(code P) and earnings(code 8), so I need to have him amend the filing to remove only the excess(code P) since I reported it as other income in 2019 returns?

So in summary: only excess(code P) goes on the 2019 return because it was disbursed before the 7/15/20 deadline meaning I need to amend and remove earnings(code 😎

And only earnings(code 😎 goes in the 2020 return meaing I need to have my tax preparer amend the 2020 returns to remove the excess(code P).

Did I get that right? @DanaB27 

[DanaB27]

Yes, you got this correct. You need to remove the earnings from your 2019 return.

Yes, your tax preparer will have to amend the tax return to remove the excess deferral (code P) from your 2020 tax return. You can explain to your tax preparer that a code P on a 2020 1099-R means: Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2019.

Yes, you are correct the 401k excess deferral deadline got extended in 2020 because of COVID. It seems the IRS didn't update that part in their 2020 Publication 525 published in April 2021.