Re: Should I be reporting extra contribution to 40...
Level 15

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The 8995 form has nothing whatsoever to do with excess 401(k) deferrals.

 

The amount return should include any earnings attributed to the excess but the earnings are not reported in the year of the excess, but in the year returned.   Only the excess is reported on your 2019 tax return and the earnings received in 2020 will be reported on your 2020 tax return.

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In your case, since you already filed 2019 there is  no reason to amend 2019 prior to actually receiving the 2020 1099-R in 2021- then you will need to amend 2019 to report it.   The methods given below are to *prevent* having to amend so there is no advantage of amending after filing and before receiving the 1099-R.

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You do not need to wait for a 1099-R next year that will probably require you to amend your 2019 tax return to report the excess on line 1 of your tax return - it can be entered this way and then ignore the 2020 1099-R with a code P in box 7 when it comes.


There are two methods to do this (I prefer the 2nd method because many people make errors or get confused by the 1099-R interview):

1) Enter a 1099-R with the returned contribution amount (not including earnings) in box 1 & 2a, and a code "P" in box 7. When asked what year 1099-R say 2020.

or 2)
Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the returned excess to your 2019 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

[Note: If there were any earning that were returned in 2020 then the earnings will be reported on a separate 2020 1099-R with a code 8 that goes on your 2020 tax return - do not enter the earnings here.]

Both methods will add the returned excess to your 2019 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Schedule 1 (Form 1040), line 21, and identify it as “Loss on Excess Deferral Distribution.”

Enter as:
Miscellionious Income ->
Other reportable Income ->
Any Other Taxable Income (yes) ->
Description (enter "Loss on Excess Deferral Distribution" and amount as a negative number).



**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.**
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