Get your taxes done using TurboTax

Please review the answers after each question you asked below.  

1. What are my options and what is the best course of action to take to minimize headaches and penalties?
   • You must report the excess contribution as income (part of your wages for the second employer) on the 2019 tax return.  The W-2 is correct because 2019 is over and can not be retroactively changed to add income that was not taxed at the time.  

   1. You should report the excess contributions on Line 1 of your 2019 Tax Return by following these steps:

   2. Login to your TurboTax Desktop Account (TurboTax Online is available for current year only).
   3. Click "Federal" from the left side of your screen
   4. Scroll down to "Less Common Income" and click "Show More"
   5. Select "Miscellaneous Income" and click Start or Update
   6. Select "Other income not already reported on a Form W-2 or Form 1099" and click on Start
   7. Answer the Question "Did you receive any other wages?  Yes
   8. Click "Continue" through the questions until you get to "Any Other Earned Income"
   9. Answer "Yes" to "Did you earn any other wages?
   10. Indicate "Other" as Source of Other Earned Income and click Continue
   11. For the description enter "2019 Excess 401K Deferrals" and click on Done
2. If I'm not allowed to return the excess deferral, what are my options?
   • Under IRS Employee Plans Compliance Resolution System (EPCRS), these excess deferrals are still subject to double taxation; that is, they're taxed both in the year contributed to and in the year distributed from the plan.
     • IRS 401(k) Fix-it Guide
3. Do I leave it in the retirement fund and apply it to subsequent years (2022 for example)? 
   • Yes, you will pay tax on this amount again when it is distributed. Because this occurred due to two different employers, the IRS recognizes that each employer would have no knowledge of the other's plan contributions.
4. I keep reading about 1099-Rs but haven't received anything.
   • A Form 1099-R is received only when a distribution is taken from your 401(k).
5. I also read that IRS charges 6% penalty of the excess amount per year and also if you distribute it 10% penalty.
   • The 6% excise tax does not apply in this situation if you are not considered a "highly compensated employee".
   • Any distribution from your 401(k) before you reach age 59 1/2 years of age will be subject to a 10% premature distribution penalty. There are a few exceptions and you can refer to the link below for both issues.
     • IRS Exceptions to Tax on Early Distributions 
6. Can someone please recommend best course of action using TurboTax?

   • You should report the excess contributions on Line 1 of your 2019 Tax Return using the steps above.

7. I'm trying to find a tax advisor to help with this, but don't know where to even start looking. Any thoughts?
   • Yes,  You can choose to use TurboTax Live with one of our experts.

Finally, it would seem that if you requested a distribution of an excess contribution the plan administrator should comply with your request.  If you do take a distribution of the excess be sure to include the earnings on that amount.  Your plan administrator can calculate that amount for you. At that time you would report the income using the Form 1099-R that you would receive.  

• This publication will also be useful: IRS Publication 560 (page 17, has not been updated to 2021 as of yet).

NOTE:  TurboTax will alert you to the fact that you have an excess contribution to your 401(k), and provide a way to enter via Form 1099-R, but you will not be getting that form as we have discussed so be sure to follow the steps above to include that excess.

@f404

Thanks @Opus 17  for the assist.

[Edited: 01/03/2022 | 9:35PM PST]