Payments to my 401k loan are being taken out of my post taxed income and should be pretax. What do I need to do to have this excluded from my taxable income on my W-2?

[jpel174911]

I work for a small employer and because of how my retirement account is managed, my loan is the first one the company has had to deal with.  The funds for payments are included in my taxable income on my paycheck and my direct deposit is split with my required payment going into a restricted account, the bookkeeper then takes my payment and mails it into the company that maintenances our plans.

[Bsch4477]

Loan repayments to a 401-K are made with after tax funds. 

[dmertz]

jpel174911 , it's a common myth that the loan is being paid back with post-tax funds.  Only the interest paid on the loan comes from post-tax money.  The loan principal itself is paid back with the pre-tax funds that you were loaned and the money that is coming out of your post-tax pay is simply replacing the pre-tax money that was spent.  Having the payments taken out of your paycheck instead of out of exact dollars bills that you were loaned just moving your cash around; money is fungible.  If you didn't pay back the loan, the outstanding pre-tax principal would become taxable.

Consider this:  If you took a 401(k) loan, put the money in your pocket, then immediately repaid the loan, you would be right back where you started whether the money you used to pay back the loan came from your pocket or from your paycheck.