2019 Excess IRA contribution refund with Interests and Tax withholding

[Serge]

In 2019 we made an excess of $6,000 to my wife IRA.

In 2020 we requested a refund. We received the $6K plus:

  *  $14.55 State taxe were withheld

  *  $193.65 interest were disbursed to us.

It seems any 1099 form showing this refund will come in May after our filling.

We will not declare the $6K IRA contriburion in our 2019 tax form since we got it back in Feb 2020

Our questions about this are:

 1. Should the State tax payment be included in the 2019 declaration or in the next 2020 declaration?

 2. Should the $193.65 interest be declared in the 2019 schedule B or in the 2020 schedule B as interest?

[SusanY1 · Accepted solution]

Both the interest and the state tax withholding will be reported on the 2020 tax return - since that is the year in which those events actually occurred. 

As you already correctly mentioned, you do not report the contribution in 2019 since you timely withdrew it.  

[Serge]

That makes sense, I was not sure. thanks

[dmertz]

SusanY1 is mistaken about the tax return on which the $193.65 of interest must be reported.  The gain on this 2019 contribution returned in 2020 must be reported on your 2019 tax return, not on your 2020 tax return.  However, the $14.55 of state tax withholding will be credited on your 2020 state tax return.

The interest does not go on Schedule B.  It goes on 2019 Form 1040 line 4b and, if the IRA participant was under age 59½ at the time of the return of this contribution, on Form 5329 Part I as an early distribution subject to a 10% penalty.  You do this in 2019 TurboTax by entering the code JP 2020 Form 1099-R that you expect to receive near the end of January 2021:

Box 1:  Total distributed (amount returned plus $193.65 gain)

Box 2a: $193.65

Box 7: Codes J and P

You can omit the state tax withholding from 2019 TurboTax since TurboTax will ignore it anyway.  When asked, be sure to indicate that is a 2020 Form 1099-R.

When you receive the actual 2020 Form 1099-R, be sure to enter it into 2020 TurboTax to get credit for the state tax withholding.  2020 TurboTax will remind you that the gains were reportable on your 2019 tax return, which you will already have done so that you won't need to amend.