Of course you'll pay taxes on the earnings. Earnings in a traditional 401(k) account are always includible in income when distributed. You'll pays taxes on the earnings on an excess deferral the same as you would if the earnings were attributable to contributions that were not excess contributions. The only reason that you pay taxes twice on the excess deferral itself is that you pay taxes on the excess deferral when contributed and that excess deferral is not permitted to be treated as an after-tax contribution. The fact that you made an excess deferral that was never corrected has no bearing on the way distributions from the traditional 401(k) account are taxed in the future.
