401K excess deferral "corrected" in 2020 but problems now in 2021

[james1cTax]

I miscalculated my maximum contribution in 2020 when changing jobs and contributed $176 too much.  I caught this in February 2021, and my employer sent me a check for the excess contribution and it's under $1 earnings.  Following Turbo Tax advice, BEFORE filing I reported the excess in my 2020 filing as if I had a 1099-R for 2021 with code P in box 7 (though I had no form yet, of course).  Those same instructions (which I printed and saved) said for 2021 taxes I should enter both 1099-R's I get for 2021 (the excess code P and its earnings code 😎 but Turbo Tax would only add the earnings to my 2021 income.  However, when I do this now, Turbo Tax says I may need to file an amended 2020 return (tied to this $176 excess contribution).  

When I look today, I see July 2021 Turbo Tax instructions which say that before filing one should report as "other earned income" and  enter that it was "2020 Excess 401K Deferrals."  Then, these instructions say to IGNORE the 2021 code P box 7 I received.  Ignoring the code P 1099-R would remove the trigger to file an amended return, but I'm not sure that matches what the IRS needs.

Reviewing my 2020 tax info:  1) Turbo Tax clearly remembers that I had $176 of 401K income in 2020 as it shows up in the income summary comparing 2020 and 2021, 2) my W-2 from my employer never included this $176 in box 1 or elsewhere, and 3) my filed taxes did include the $176 in line 1, which matches the total of my W-2 earnings at both jobs plus the $176, but 4) I do not find the amount of $176 anywhere in my entire tax form or worksheets (PDF search), so I don't know how/that the $176 was called out to the IRS.

How do I know that the IRS knows I reported the $176 as 401K income in my original 2020 tax filing?  What other steps do I need to take to resolve this once and for all?

[MaryK4 · Accepted solution]

The IRS computers will see the 1099-R Code P and look for either the income reported on the original return (as in your case) or an amended return that include the income.  

Look at it like this: if you prepare an amended 2021 tax return to first REMOVE the $176 you reported last year, then add the $176 income from the 1099-R Code P (of course there will be no amended return because the tax liability and income will be the same).

[james1cTax]

Thank you. MaryK1101.  Your first sentence clarifies what the IRS will look for, and I've since confirmed it's there.  I see the $176 was included in my 2020 income, and Turbo Tax ignores it in my 2021 income.  This reporting is correct even though I entered the 2021 Code P last year (without a form, using Turbo Tax instructions) and also entered the 2021 Code P this year with the actual form.  The issue was more a disconnect between the various Turbo Tax instructions.  Thanks again!