Where do you report earnings on excess Roth IRA contributions

[Michigan Man]

I made an excess 2023 Roth IRA contribution, which I reversed on April 12, 2024, though after I filed my 2023 taxes in February 2024.  How do I pay the tax on the excess contribution?  Do I just owe the 6% on the returned amount (box 1 on 1099-R) excise tax when filing 2024 taxes?  Or do  have to file an amended 2023 return with the amount included in box 2 on 1099-R?  If so, what line item on 2023 amended return?

[MaryK4]

You do not have to pay the tax on the excess contribution because you made a corrective distribution.  A corrective distribution is timely if it is made by the extended due date (October 15th) of the taxpayer's tax return for the tax year of the contribution if the return was filed on time.  You will have to include the Box 2 amount for income on your 2024 tax return.  You do not have to amend your return.

[Michigan Man]

Thank you for the reply.  The 1099-R code in box 7 is "P", which is "P--Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2023".  When Turbo Tax imports the 1099-R, after going through the applicable prompts, it tells me the earnings are taxable in 2023.  When I go through the process to attempt to amend 2023, there's no obvious place to enter the taxable amount in box 2a. The code table for "P" in the 1099R instructions says "See the explanation for Code 8. The IRS suggests that anyone using Code P for the refund of an IRA contribution under section 408(d)(4), including excess Roth IRA contributions, advise payees, at the time the distribution is made, that the earnings are taxable in the year in which the contributions were made."  Should I just file a 1040-X with the increase in taxable income, and explanation in Part II?

[DanaB27]

Your Form 1099-R  for the return of an Roth IRA excess contribution should have codes P and J in box 7. If not then you need to contact the custodian to correct the form.

To enter 2024 Form 1099-R with Codes P and J in your 2023 amended return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2024?"
5. Select "I'll type it in myself"
6. Box 1 should be the total distribution (contribution plus earning)
7. Box 2a should be the earnings
8. Box 7 should be J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

To remove the 6% excess contribution penalty from your 2023 return please make sure that you told TurboTax that you removed the excess contribution by the due date:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until the penalty screen and enter the excess contribution amount withdrawn.

Note if you had taxes withheld in Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2024 Form 1099-R also on your the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 income but the withholdings will be applied to 2024.

[Michigan Man]

Thank you for this response, but I still don't know where to enter the taxable earnings in box 2a in the 2023 amended return.  TurboTax doesn't seem to have a dedicated box to enter this.  

[DanaB27]

You will start the 2023 amended return. Please see How do I amend my federal tax return for a prior year? for instructions.

You will enter your 2024 Form 1099-R with codes P and J in the amended return:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Then you can add the 2024 1099-R with codes P and J

Once you are done TurboTax will carry the amounts to lines 4 of the new Form 1040. Only the earnings will be taxable on line 4b.

[fanfare]

 positive earnings allocable to the excess are included in income on 1040 Line 4b for the year of the contribution. negative earnings are ignored; in any case, for purposes of basis, consider the original contribution amount as returned.
"Include the earnings in income for the year in which you made the contributions, not the year in
which you withdraw them."

"Should I just file a 1040-X with the increase in taxable income, and explanation in Part II?"

That's the easiest way if you are willing to mail the 1040-X.

Note: Do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

Form 5329 is not needed because the penalty for withdrawal before age 59 1/2 has been eliminated starting in 2023.

1040-X Line1 Col B will show the tax on  amount of the allocable earnings.

@Michigan Man 

[fanfare]

You want the tax software to calculate the new tax with the additional amount

@Michigan Man 

You can get Form 1040-X in fillable PDF from the IRS.gov  and complete it manually.