Amend 2019 to report the excess $7,000 contribution and pay the 6% penalty on $7,000.
Amend 2020 to report the excess $7,000 contribution carried in from 2019 and pay the 6% penalty again on the 2019 excess contribution (not on the 2020 excess contribution). Also report on the amended 2020 tax return the earnings on the code PJ 2021 Form 1099-R. These earnings are subject to ordinary income tax and a 10% early-distribution penalty.
On the 2021 tax return report the code J 2021 Form 1099-R. The $7,000 contribution basis from the excess 2019 contribution (plus any other contribution or conversion basis) will be subtracted to determine the amount that is subject to tax and early-distribution penalty.
