According to the IRS:
Correcting excess deferrals
The excess deferrals can be corrected by distributing the excess (including earnings) by the due date of your tax return.
Consequences if excess is not corrected
If the excess is not timely distributed, it is:
- included in your taxable income for the year contributed, and
- taxed a second time when the deferrals are ultimately distributed from the plan.
The excess deferrals may not be distributed until a distribution is otherwise permissible under the terms of your plan. Additionally, you do not receive basis in the excess deferrals.
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