The answer I gave you previously is correct.
Your 2019 and 2020 contributions are separate and handled differently.
Your 2020 contribution was removed before the due date of your 2020 tax return so as long as the earnings attributed to the 2020 contribution was also returned then the 1099-R code PJ entered in the 2020 tax return will make it penalty free and only the earnings will be taxable income.
For the rules on this see https://www.irs.gov/publications/p590a
What if You Contribute Too Much?
A 6% excise tax applies to any excess contribution to a Roth IRA.
Withdrawal of excess contributions.
For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made.
If you timely filed your 2020 tax return without withdrawing a contribution that you made in 2020, you can still have the contribution returned to you within 6 months of the due date of your 2020 tax return, excluding extensions. If you do, file an amended return with "Filed pursuant to section 301.9100-2" written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return.
Your 2019 contribution (even though it was made in 2020 is still a 2019 contribution) must be reported on your 2019 tax return.
The due date for 2019 was April 15 (extended to July 15 because of COVID) 2020. Because the 2019 contribution was not removed until 2021, it was beyond both the 2019 due date and extended due date so is cannot get the treatment quoted above for 2020 and the 6% excise penalty applies for 2019 that requires that a 2019 5329 be filed with the penalty.
That 2019 excess was also not removed in 2020 and it was NOT a 2020 contribution so the "remove by due date" rules do not apply. Because that 2019 excess remained in the IRA the entire 2020 year then there is another 2020 excess that must be reported on another 2020 5329 form for the same 6% penalty a second time.
However, you do not report the earnings on the 2019 excess since removing the earnings only applies to the timely return of excess by the due date. Earnings are not a contribution and when the 6% penalty is applied the earnings are immaterial.
(What many financial institutions seem to overlook is that a 2019 contribution made *in* 2020 is still a 2019 contribution so the 2019 excess rules apply and not the 2020 rules.)
I hope that explains 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.**
