Retirement tax questions

Yes, any earnings distributed with your returned excess will be reported on your 2023 tax return.

It depends on where she is removing the excess from. If she only has it returned from the tax-deferred account then she will have to add the full amount ($2,131.65) to the wages with the steps below (reported on line 1h of Form 1040).

If she takes $1,624.97 out of the Roth and $506.68 of the tax-deferred account then she would report only $506.68 on line 1h of Form 1040.

Please be aware, if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

Please follow the steps below:

1. Login to your TurboTax Account 
2. Click "Wages & Income" (under Federal) on the left side of your screen
3. Scroll  down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2023 tax filing due April 15, 2024: 

• Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2022 (for the tax-deferred account). 
• If the distribution was for a 2022 excess deferral to a designated Roth account, your Form 1099-R should have codes B and P in box 7. Don’t add this amount to your wages on your 2022 return. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

Please see Pub 525 for additional information.