Distributions Under Employee Plans
Compliance Resolution System (EPCRS)
The procedure for correcting excess annual additions under
section 415 is explained in the latest EPCRS revenue
procedure in section 6.06 of Rev. Proc. 2021-30, 2021-31
I.R.B. 172, available at IRS.gov/irb/2021-31_IRB#REVPROC-
2021-30.
Distributions to correct a section 415 failure are not
eligible rollover distributions although they are subject to
federal income tax withholding under section 3405. They are
not subject to social security, Medicare, or Federal
Unemployment Tax Act (FUTA) taxes. In addition, such
distributions are not subject to the 10% early distribution tax
under section 72(t).
You may report the distribution of elective deferrals (other
than designated Roth contributions) and employee
contributions (and earnings attributable to such elective
deferrals and employee contributions) on the same Form
1099-R. However, if you made other distributions during the
year, report them on a separate Form 1099-R. Because the
distribution of elective deferrals (other than designated Roth
contributions) is fully taxable in the year distributed (no part of
the distribution is a return of the investment in the contract),
report the total amount of the distribution in boxes 1 and 2a.
Leave box 5 blank, and enter Code E in box 7. For a return of
employee contributions (or designated Roth contributions)
plus earnings, enter the gross distribution in box 1, the
earnings attributable to the employee contributions (or
designated Roth contributions) being returned in box 2a, and
the employee contributions (or designated Roth
contributions) being returned in box 5. Enter Code E in box 7.
For more information, see Rev. Proc. 92-93, 1992-2 C.B.
505.
Similar rules apply to other corrective distributions under
EPCRS. Also, special Form 1099-R reporting is available for
certain plan loan failures. See section 6.07 of Rev. Proc.
2021-30 for details.
section 6.06 of Rev. Proc. 2021-30, 2021-31
I.R.B. 172
A distribution of an Excess Amount is generally treated in the manner described in section 3 of Rev. Proc. 92-93, 1992-2 C.B. 505 (relating to the corrective disbursement of elective deferrals). The distribution must be reported on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for the year of distribution with respect to each participant or beneficiary receiving such a distribution. Except as otherwise provided in section 6.02(5)(c) with respect to recovery of small Overpayments, where an Excess Amount has been or is being distributed, the Plan Sponsor must notify the recipient that (a) an Excess Amount has been or will be distributed and (b) an Excess Amount is not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan, as defined in § 402(c)(8)(B) (and, specifically, is not eligible for rollover).
as I understand it, since employer contributions, if made, are always the same percentage for every employee. when the anti-discrimination tests are failed what is returned is employee contributions. if i'm wrong and part or all of what's being returned includes employer contributions, such an amount would taxable since it would represent additional compensation that was tax-free when the employer made their contribution.
but the simplest thing to do is to clarify the situation is with your company's human resource/personnel department.
