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sleung1979
Returning Member

2020 Excess Deferral

I changed jobs in 2020 and made an excess deferral to my 401(k). I did not notice until doing my taxes in March 2021, so I did not continue filing. I then notified the plan administrator immediately and requested a corrective distribution. However, upon inquiring with my current employer, I am being told a corrected W2 is not necessary. Upon researching the topic here, I found plenty of solutions on how to enter the excess deferral as miscellaneous income on my 2020 return when I continue to file it. However, my question is do I leave the 401(k) contribution amount as-is (i.e. including the excess)? Or, do I adjust that accordingly on the W2 entry section (i.e. subtract the excess deferral that is to be refunded)? Or, does it even matter? In addition, most of my excess contribution was made to a designated Roth account. Does that mean I only need to add the "tax deferred" amount to miscellaneous income while the designated Roth contributions do not have to be accounted for as miscellaneous income, since it has already been taxed?

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7 Replies
MinhT1
Expert Alumni

2020 Excess Deferral

Reporting excess salary deferrals (excess 401k contributions) returned to you after the end of the tax year but by April 15th of the following tax year on your 1040.  Do not create your own 1099-R for this situation.

 

Page 10 of IRS Pub 525 under Excess deferrals (the IRS term for 401K contribution is deferral) tells us to include the excess deferrals as income on line 7 of Form 1040 if the money was returned after the end of the tax year but by April 15th of the following tax year.  You need to report only the excess contribution, not any money generated by the investment of the excess contribution.  What you earned will be covered by a 1099-R for the following tax year and will be entered then as a normal 1099-R.

 

Below is how to do this in TurboTax:

  • Click on Federal in the left-hand column, then on Wages & Income
  • Under All Income, scroll down to Less Common Income
  • Select Miscellaneous Income and click Start
  • Select Other income not already reported on a Form W-2 or Form 1099 and click on Start
  • Answer the question "Did you receive any other wages?  Yes
  • Click through the questions till you get to Any Other Earned Income
  • Answer Yes to Did you earn any other wages?
  • Indicate Other as Source of Other Earned Income and click Continue
  • For the description enter "2020 Excess 401K Deferrals" and click on Done

 

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2020 Excess Deferral

Hi MinhT1, 

 

I have a related question on this.  My wife made an excess deferral and reported it to her employer and the plan administrator.  As a result we have received the excess deferral back.  However, her employer also sent her an amended W2 to reflect that there was an excess deferral and reduced Box 12 Letter code E by the amount of the deferral (several thousand dollars).  I just want to ensure that by following the steps below and reporting the excess deferral as miscellaneous income we will not be double counting this amount (because it is no longer listed on her W2 as a deferral).  Thanks! 

ThomasM125
Expert Alumni

2020 Excess Deferral

@tuckerianduke Since you have a corrected W-2, you don't need to make the entry to Other Income. You may want to verify that the amount listed in box 1 on your W-2(c) form is your wages less the corrected retirement plan contribution for the year. If so, then you just need to report the W-2(c) instead of the original W-2 form on your tax return.

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2020 Excess Deferral

Hi Thomas, I had excess contribution in 2021 and already got that amount from my plan provider

 

if I am going to add that amount as suggested method ( "Less Common Income", "Miscellaneous Income", ""2021 Excess 401K Deferrals""  etc. )

 

my employer didn't provide corrected w2,  can I deduct that amount that I am going to report as miscellaneous from box 12 of w2?    since if I don't deduct i pay double tax? am I right? should I adjust box 12? but keep box 1 the same

ThomasM125
Expert Alumni

2020 Excess Deferral

@imangoldasteh No, you can't deduct anything by making an entry in box 12 on your W-2 form. What is reported in box 1 on your W-2 form will show as your wage income on your tax return, box 12 is just used to report the reason box 1 may be different from your gross wages, normally reported in box 3.

 

If you need to report additional income, you can use the Less Common Income method to do that, but you can't then adjust that amount by manipulating your W-2 entries. You need to enter your W-2 entry the way  it is reported on the form.

 

If you are adding unreported wage income because you contributed too much to your 401-K, then it seems you are not being double taxed, since the amount in box 1 on your W-2 and the amount you are adding as Less Common Income would bring you up to the correct taxable wage income total. 

 

@imangoldasteh 

[Edited 2/21/22 at 12:51 PM PST] 

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2020 Excess Deferral

@ThomasM125 

 

when the amount on box 12 goes above the limit software automatically tax that amount and since I put that on "Income not reported anywhere else" I am again going to pay taxes again!   am I missing something here?  that's why I deducted box 12 to avoid double taxation 

ThomasM125
Expert Alumni

2020 Excess Deferral

@imangoldasteh I didn't realize that the amount reported in box 12 is already causing the excess contribution to be taxable in TurboTax. If that is the case, then you don't need the entry in the "Income not reported elsewhere" section. I assumed you made the box 12 entry, that it wasn't on the original W-2 form. 

 

So, you should report the original W-2 form the way it is stated. If that results in the correct income being reported on your tax return, then you should make no additional entry. Otherwise, you will use the "Income not reported elsewhere" option to account for any unreported income.

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