Excess 401k deferral/contribution in 2021

[schult461]

I started a new employer in December of 2021 and they took out 401k contributions for my first paycheck (which included a sign-on bonus, so the 401k contribution is pretty hefty) (dated last day of the month/year, received first bank day of the year).  I had informed them I had already reached the limit, but I guess that didn't make it into their payroll system.

I didn't notice this at the time since it was received in the beginning of the year I assumed it was withheld for 2022, and I didn't check my W2 until I was doing taxes this weekend (I know, I should have done it earlier...), but it seems like its too late to get it corrected before the deadline on Monday (or might have already passed?)

It seems like my best course of action is report it as excess deferral so it gets taxed properly for 2021 and then just let it ride until I retire.    Getting it backed out at this point means I pay taxes on it now (while I'm a high bracket earner) and I get a 10% penalty.

For what it's worth Turbo tax 'completechecker' or whatever its called doesn't catch my contribution overage.

[DanaB27]

Yes,  if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it (with the steps below) and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

Yes, you can wait to take the distribution to avoid your current high tax bracket and the 10% early withdrawal penalty.

1. Click "Federal" from the left side of your screen
2. Scroll  down to "Less Common Income" and click "Show More"
3. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
4. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
5. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
6. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
7. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
8. On the "Any Other Earned Income" screen enter "2021 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".