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richard-s-miner
Level 1

I maxed out my 401K at $25,000. However, my employer Sent me an "Excess Contribution - Type 2" letter refunding part of the contributions. How do I account for this?

I can't figure out how to account for this in TurboTax?
1 Best answer

Accepted Solutions
macuser_22
Level 15

I maxed out my 401K at $25,000. However, my employer Sent me an "Excess Contribution - Type 2" letter refunding part of the contributions. How do I account for this?


@TomD8 wrote:

If your contributions were made on a pre-tax basis, your employer must amend your W-2 for this year to show the excess deferral amount as taxable wages (in Box 1).

Any earnings included in the amount returned to you should be added to your taxable income on your 2020 tax return.


You NEVER change what was reported on the W-2.   The W-2 reports the contribution that happened in 2019 and history cannot be changed.    That is NOT how to report this.

 

As I said, it depends on how the plan admin administrator reports this.   If it was a simply return of excess deferrals then it would be reported on a 2020 1099-R with a code P in box 7 that would have to be reported on an amended 2019 tax return as additional 1040 line 1 income just as if it had not been deducted from the W-2 box 1 income.

 

However, what makes me hesitate to recommend doing that now without the 1099-R so that amending would be avoided, is that the poster said the employer sent a letter informing about the excess.   If this was not a case of two employers, each who withheld within their plan limits,  but was an single employers that  made a over contribution error, then the resulting 1099-R would probably have a code E in box 7 for  a "Distributions Under Employee Plans Compliance Resolution System (EPCRS)".

 

That is reported in a different way and ends up on the 1040 line 4d and not line1.

 

In this case, unless the plan administrator will tell you exactly how this will be reported on the 2020 1099-R, and what code will be in box 7, then it might be better to just wait for the 1099-R.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

View solution in original post

5 Replies
macuser_22
Level 15

I maxed out my 401K at $25,000. However, my employer Sent me an "Excess Contribution - Type 2" letter refunding part of the contributions. How do I account for this?

When was the excess returned - 2019 or 2020?   Have you receives a 1099-R?

 

How you report it depends on what year the excess contribution was for and the code that the plan administrator will but in box 7 on the 1099-R form and how the amount of earnings attributed to the excess are reported.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
richard-s-miner
Level 1

I maxed out my 401K at $25,000. However, my employer Sent me an "Excess Contribution - Type 2" letter refunding part of the contributions. How do I account for this?

The excess was for 2019, but returned in 2020.  I assume I will not receive the 1099-r for this until January 2021, and will not have to account for it in my taxes until next year, is that a correct assumption?

TomD8
Level 15

I maxed out my 401K at $25,000. However, my employer Sent me an "Excess Contribution - Type 2" letter refunding part of the contributions. How do I account for this?

If your contributions were made on a pre-tax basis, your employer must amend your W-2 for this year to show the excess deferral amount as taxable wages (in Box 1).

Any earnings included in the amount returned to you should be added to your taxable income on your 2020 tax return.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

macuser_22
Level 15

I maxed out my 401K at $25,000. However, my employer Sent me an "Excess Contribution - Type 2" letter refunding part of the contributions. How do I account for this?


@TomD8 wrote:

If your contributions were made on a pre-tax basis, your employer must amend your W-2 for this year to show the excess deferral amount as taxable wages (in Box 1).

Any earnings included in the amount returned to you should be added to your taxable income on your 2020 tax return.


You NEVER change what was reported on the W-2.   The W-2 reports the contribution that happened in 2019 and history cannot be changed.    That is NOT how to report this.

 

As I said, it depends on how the plan admin administrator reports this.   If it was a simply return of excess deferrals then it would be reported on a 2020 1099-R with a code P in box 7 that would have to be reported on an amended 2019 tax return as additional 1040 line 1 income just as if it had not been deducted from the W-2 box 1 income.

 

However, what makes me hesitate to recommend doing that now without the 1099-R so that amending would be avoided, is that the poster said the employer sent a letter informing about the excess.   If this was not a case of two employers, each who withheld within their plan limits,  but was an single employers that  made a over contribution error, then the resulting 1099-R would probably have a code E in box 7 for  a "Distributions Under Employee Plans Compliance Resolution System (EPCRS)".

 

That is reported in a different way and ends up on the 1040 line 4d and not line1.

 

In this case, unless the plan administrator will tell you exactly how this will be reported on the 2020 1099-R, and what code will be in box 7, then it might be better to just wait for the 1099-R.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

View solution in original post

richard-s-miner
Level 1

I maxed out my 401K at $25,000. However, my employer Sent me an "Excess Contribution - Type 2" letter refunding part of the contributions. How do I account for this?

You nailed it Macuser_22.  I looked back and the same thing happened in 2016/2017.  It was due to a distribution code 8 on my 1099-R that I received back then.  I'll get the 1099-R next year to settle up.  This wasn't due to overpayment on my part, it had to due with company checks based on differed distributions across all employees.  Small company with no matching, so most people didn't try to max it out like I did.  Thanks for clarifying!

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