401k/403b Over contribution - no W2C

Report excess salary deferrals (excess 401(k) contributions) returned to you after the end of the tax year but by April 15 of the following tax year on your 1040 as Wages.  Don't create your own 1099-R for this situation.

Page 11 of IRS Pub 525 under Excess deferrals (the IRS term for 401(k) contribution is deferral) tells us: 

If your deferrals exceed the limit, you must notify your plan by the date required by the plan. If the plan permits, the excess amount will be distributed to you. If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. The plan must then pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. You must include the excess deferral in your income for the year of the deferral. File Form 1040 or 1040-SR to add the excess deferral amount to earned income on line 1h.

What you earned will be covered by a 1099-R for the following tax year and will be entered ‌as a normal 1099-R next year.

Below is how to do this in TurboTax:

1. Click on Federal in the left-hand column, then on Wages & Income
2. Locate the section Less Common Income
3. Select Miscellaneous Income and click Start
4. Select Other income not already reported on a Form W-2 or Form 1099 and click on Start
5. Answer the question "Did you receive any other wages?  Yes
6. Click through the questions till you get to Any Other Earned Income
7. Answer Yes to Did you earn any other wages?
8. Indicate Other as Source of Other Earned Income and click Continue
9. For the description enter "2023 Excess 401(k) Deferrals" and click on Done

Thanks for this! Once I receive a 1099-R Would I use any of the 1099-R details in 2024 tax year? 

I had read in another community post:

If you receive the distribution of the excess deferral and earnings by April 15th (which I did) then please note… 

• Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2023. (Roger can ignore and follow your instructions on reporting)
• The earnings on Form 1099-R with Code 8 in box 7 should be reported in 2024. (Does this still hold true if I self report sans 1099-R this year? Do I still need to report next year?) 

I plan on filing an extension on 2023 taxes due to an entirely different reason. Wanted to add that if it makes any difference. 

Yes, that's correct.  The 1099-R with Code P can be ignored in 2024, and the 1099-R with Code 8 will be reported in your 2024 return.

Here's more info on Excess 401K Contribution. 

@99taxproblems

[Edited 4/2/2024 | 9:09 am]

This is fantastic - thank you so much for your help. One final question: 

The document that they sent with the check indicated that part of the refund was on the earnings. The document says to report the earnings next year (2024 taxes.) That would be the only reason I would need to document anything from the 1099-R next year I presume?  

Yes, the earnings will be reported on a 2024 Form 1099-R with code 8 and you will enter it on your 2024 tax return.

@99taxproblems 

@DanaB27 - super helpful thank you for this. One last follow up question - I've followed the steps listed and added the amount I have been reimbursed by check to turbotax. With that said, would I need to remove the overage from the income section where I documented my W2 information. i.e. 12a E (for 403(b) contributions)? 

My guess is that since this amount has been added under misc income I'd want to keep the information reported on 12aE the same as what is on my W2. Let me know if I'm off base here and should reduce that to be within the limits. 

As long as you are not getting an error condition that would prevent electronic filing of your return, there is no reason to make a change to the information reported on your W-2.

@99taxproblems 

I am getting an error so my guess is that it will prevent me from efiling. In that case should I lower my contributions to the 403b in the W2 section to reflect what I had received as a reimbursement from the brokerage? I’ve already got that amount documented in the MISC income as suggested above. @AnnetteB6 @DanaB27 @MarilynG1 

So we can better assist you could you please clarify what error are you receiving?  

@99taxproblems 

I'm getting the following message: 

Let's Check XXXX's Retirement Contributions 

We see XXXX contributed @$22,654 to retirement plan(s). 

The maximum most people under age 50 can contribute to all salary deferral retirement plans for 2023 is $22,500. 

Read IRS Publication 560, Retirement Plans for Small Business, to find out the maximum salary deferral for each type of retirement plan and what you need to do to correct the $154 overpaid into XXXX's account. 

What Steps Do I Need to Take?
                                                                          AMOUNT

All Contributions from xxxx's W-2s.           $22,654
Maximum Allowed                                       -$22,500
Overpayment                                                  $154

Yes, if you have reported the excess as Other Earned Income (which it seems you have), you may reduce the amount reported for your W-2. This will resolve the contribution error message and allow you to e-file your return.

@99taxproblems 

Perfect, so this is as simple as just reducing the W2 401k contribution line by $154? Leave MISC alone? 

Yes, you are correct.