The NIA is taxable and subject to a 10% early-distribution penalty. The NIA is taxable on the tax return for the year in which the excess contribution being returned was made. That would be the 2016 tax return if the contribution for 2016 was made in 2016 (code JP on the 2017 Form 1099-R) or on the 2017 tax return if the contribution for 2016 was made in 2017 (code J8 on the 2017 Form 1099-R).
To report a code JP 2017 Form 1099-R on your 2016 tax return, simply enter the Form 1099-R into 2016 TurboTax as if you have already received it:
- Box 1 = gross distribution (excess plus NIA)
- Box 2a = NIA
- Box 7 = code JP
Be sure to also enter the original Roth IRA contribution and indicate in the follow-up that you had the excess returned (do not include the NIA when entering the amount of excess that was returned).
