Get your taxes done using TurboTax

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@ajaychhawacharia wrote:

Had excess contribution of $9,000 to 401k in 2021 due to change in employer. Noticed and informed new employer the same in 2021 itself and they sent me a cheque for the overpayment of $9000 in Dec, 2021. They just send me  a distribution statement but no tax form. 2021 W2 also doesn't reflect this correction. What should i do? HR said i will get tax forms next year. I read that i need to report the $9000 as income in my 2020 tax return. Please advise how to handle this.

 

 

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You do not need to wait for a 1099-R next year that will probably require you to amend your 2021 tax return to report the excess on line 1 of your tax return - it can be entered this way and then ignore the 2021 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 2021.

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 2020 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 2021 then the earnings will be reported on a separate 2022 1099-R with a code 8 that goes on your 2022 tax return - do not enter the earnings here.]

Both methods will add the returned excess to your 2021 wages on 1040 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 8 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).