My employer stop taking my payments out of my paycheck for two months to help me out financially. The payment started up again and have been doing so for more than half the year. I now have a 1099 or being taxed on the full amount of two loans saying they are defaulted even the white they are currently being repaid
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Stopping payments on the 401(k) and not making up the shortfall within the grace period for doing so (usually 60 days)has apparently resulted in a deemed distribution of the outstanding loan balance. A deemed distribution is taxable and subject to a 10% early-distribution penalty unless you have a penalty exception that applies.
A deemed distribution does not satisfy the loan. You are still required to pay back the loan. Because you will have already paid the taxes on the outstanding loan balance, your repayments now become after-tax basis in your 401(k). In the future when you are permitted to make distribution, each distribution will be partially taxable and a partially nontaxable distribution of your after-tax basis, so you will not be taxed twice on this money.
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