1099-R: The amount of taxes withheld on your 1099-R is more than your taxable retirement income...?

[mgd092907]

My employer failed the 401k discrimination test and as a result money that was supposed to go to my retirement was sent back to me and taxe withheld.  The audit risk step in Turbotax is flagging a risk that:

"The amount of taxes withheld on your 1099-R is more than your taxable retirement income.  If you have an amount in Box 4 (Federal income Tax Withheld) of your 1099-R, generally all or part of your retirement distribution is taxable.  Go to Personal Income, and select the Retirement category.  Verify the amount in Box 2a of your 1099-R is the correct taxable amount."

I don't really know how to resolve this or what it means.  I simply entered my 1099-R as the form and boxes are complete on it.  The whole situation confuses me and I don't want it to be a problem.  Any thoughts or suggestions would be appreciated.

[ToddL99 · Accepted solution]

If the 1099-R is accurate (taxable income is less than taxes withheld) and the program will allow you to proceed and e-file, then do not  be concerned about a possible audit risk -  just continue and file the return.

As the program's instructions state: "Verify the amount in Box 2a of your 1099-R is the correct taxable amount."  You have done that.

It is uncommon for tax withheld to be greater than the taxable income reported, hence the "audit risk" flag. It does, however, happen and you just need to proceed and file.

Some states, however, will not accept an e-filed return where tax withheld is "too high" (in their judgement). If you encounter this problem, you will have to file your state return by mail.

[SweetieJean]

You may have made a data entry error (such as typing a comma instead of a decimal).   Please check the entire 1099-R carefully.

[HoagHaven]

I got the same message as above in the audit risk section of TurboTax Home and Business.  The statement is NOT true.  The income was over $3,000 as shown on the 1099-R.  The taxable portion is the same amount as shown on the 1099-R.  My employer withheld 10% for taxes.  The roughly $300 withholding is shown on the 1099-R.  Yet, I get the audit risk flag.

When I put $0 for the withholding, the audit risk flag disappears and I am left with low audit risk.

I think there is an error in the Turbo Tax program.  I'm going to put the withholding back in, ignore the audit risk flag and file my return now (extension previously filed).

Turbo Tax should fix this so that you don't raise our blood pressure more than necessary!

HoagHaven.

[HoagHaven]

P.S.  I have carefully reentered the data from the 1099-R very carefully several times.  I did not use commas or decimal points.  Turbo Tax put those in automatically. 

HoagHaven.

[SweetieJean]

What are amounts in (state) boxes 14 and 16 of the 1099-R?

[HoagHaven]

Both are blank.

[HoagHaven]

Both are blank.

I notice something else.  When I got done with deductions, I went throught a few more screens and one is called "Retirement Income Results".  It shows the 1099-R distribution as not taxable despite the fact that I entered the full amount of the retirement income as the taxable amount when I inputted the 1099-R data in the personal income section. 

[HoagHaven]

Anticipating your next question, Box 7 has code 8 which is for an excess contribution.  The letter from the 401k plan and everything I have read says that the excess contribution needs to be reported in the tax year it was received, not the tax year the original contributions were made.  So in my case, I got the check in 2021 from the 401k plan so I need to report that as taxable income for 2021.

[HoagHaven]

So any answer to the above string?  Why am I getting a audit flag for this?