A code E is a special case. It means that the distribution is under EPCRS which plan administrators correct error that the plan made. It is not a normal "return of contribution" and unless it is a designated Roth (403(k) Roth)), it is fully taxable.
It is not reported as above but the code E 1099-R is entered in the 1099-R interview. The tax will be on the 1040 line 5b.
[This usually only happens it you only have a single employer and the plan should know if the limit has been exceeded since they have control and the plan makes an error. Multiple employers where each plan is within it's own limits should never issue a code E 2099-R - however, some plan administrators do it incorrectly and issue a code E when it is inappropriate to do so. Probably not worth arguing about. since either way it is taxable - only how it is reported is different.]
Per the IRS instructions for a code E 1099-R:
Distributions Under Employee Plans Compliance Resolution System (EPCRS)
The procedure for correcting excess annual additions under section 415 is explained in the latest EPCRS revenue procedure in section 6.06 of Rev. Proc. 2019-19, 2019-19 I.R.B. 1086, available at IRS.gov/irb/2019-19_IRB#REV-PROC-2019-19.
Distributions to correct a section 415 failure are not eligible rollover distributions although they are subject to federal income tax withholding under section 3405. They are not subject to social security, Medicare, or Federal Unemployment Tax Act (FUTA) taxes. In addition, such distributions are not subject to the 10% early distribution tax under section 72(t).
You may report the distribution of elective deferrals (other than designated Roth contributions) and employee contributions (and earnings attributable to such elective deferrals and employee contributions) on the same Form 1099-R. However, if you made other distributions during the year, report them on a separate Form 1099-R. Because the distribution of elective deferrals (other than designated Roth contributions) is fully taxable in the year distributed (no part of the distribution is a return of the investment in the contract), report the total amount of the distribution in boxes 1 and 2a. Leave box 5 blank, and enter Code E in box 7. For a return of employee contributions (or designated Roth contributions) plus earnings, enter the gross distribution in box 1, the earnings attributable to the employee contributions (or designated Roth contributions) being returned in box 2a, and the employee contributions (or designated Roth contributions) being returned in box 5. Enter Code E in box 7. For more information, see Rev. Proc. 92-93, 1992-2 C.B. 505.
**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.**
