@ck128 wrote:
With 1 week to go we now need to consider the scenario that refund won't be issued or will be issued past 7/15, so most of the answers above no longer applies.
TurboTax gave a clear example (READ last sentence of paragraph 1) that even past tax deadline, one can still request and get refund for the excess contribution.
Does the double tax scenario mean you will be
1. Taxed in 2019 for excess contribution by reporting income on Line 1.
2. Taxed again when retire and take distribution
But if you already took refund, then there is no more tax on that refunded amount. What does double tax mean?
"Example 2:
Assume same information as Example 1. But Jessica doesn't discover the overpayment until November 20, and she had already filed her 2019 return. She notifies the plan administrator immediately, and she withdraws the excess on December 5.
Jessica must pay additional taxes on the overpayment because she didn't withdraw the funds by April 15. She amends her 2019 return to report the overpayment as if she received Form 1099-R (same as Example 1) and pays the additional taxes.
On her 2020 return, Jessica enters the forms she received from the plan administrator. Only the earnings on the overpayment will be added to Jessica's 2020 income."
The "double tax" means it must still must be reported wages in line 1 of the 2019 tax return because your employer deducted from wages on your W-2 so you must put it back as wages.
If not removed then it remains "before tax" money in the 401(k) so like all other 401(k) distributions it will be taxed when withdrawn as ordinal income.
When timely returned before April 15, then it still must be reported as wages on the 2019 1040 line 1, but it is gone from the 401(k) so to will never be distributed as taxable income. When returned, the plan administrator is also required to return any earnings attributed to the excess but that is taxed in the year returned, so a 2019 excess returned in 2020 will generate 2 1099-R's - one with a code P in box 7 that goes on the 2019 tax return and places the excess on line 1 of the 1040 and one with a box 7 code 8 that reports the earnings that is reported on a 2020 that return. The 1099-R with the code P (that must be reported on a amended 2019 tax return) when it comes in 2021 can be ignored if the excess is reported as explained above on the 2019 tax return, otherwise it would require amending 2019 to report it.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
