401 k Excess contribution

[khk58]

I switched the job in 2020 and did not realize that I over contribute to the 401k. I asked the investment company to remove the excess contribution and it was done in early March 2021. But it said I will not receive the 1099-R until Jan.2022. I was wondering how can I report this excess pre-tax deferrals plus allocable income in 2020 tax return in TT? Does anyone help? Thank you

[macuser_22]

You do not need to wait for a 1099-R next year that will probably require you to amend your 2020 tax return to report the excess on line 1 of your tax return - it can be entered this way and then ignore the 2021 1099-R with a code P in box 7 when it comes.

There are two methods to do this (I prefer the 2nd method because many people make errors or get confused by the 1099-R interview):

1) Enter a 1099-R with the returned contribution amount (not including earnings) in box 1 & 2a, and a code "P" in box 7. When asked what year 1099-R say 2021.

or 2)
Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the returned excess to your 2020 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

[Note: If there were any earning that were returned in 2021 then the earnings will be reported on a separate 2021 1099-R with a code 8 that goes on your 2021 tax return - do not enter the earnings here.]

Both methods will add the returned excess to your 2019 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Schedule 1 (Form 1040), line 8 and identify it as “Loss on Excess Deferral Distribution.”

Enter as:
Miscellionious Income ->
Other reportable Income ->
Any Other Taxable Income (yes) ->
Description (enter "Loss on Excess Deferral Distribution" and amount as a negative number).

[khk58]

When I am using method 1 and choosing to use "need a substitute 1099 R", the system shows "Needs review". Is there any way I can make it right? Thank you

[macuser_22]

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@khk58 wrote:

When I am using method 1 and choosing to use "need a substitute 1099 R", the system shows "Needs review". Is there any way I can make it right? Thank you

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#1 is NOT a substitute 1099-R.  You do not have an original 1099-R to substitute for.    It is a regular 1099-R just entered early (That is who I suggest method 2 because #1 is confusing to many.

[myortiz27]

Both federal and state tax were taken before I got the excess funds.  For example, the excess contribution was 938.71 and federal tax = 93.87, state tax =9.39, so I received a net check for 835.45.  Where do I enter the tax taken out?

[macuser_22]

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@myortiz27 wrote:

Both federal and state tax were taken before I got the excess funds.  For example, the excess contribution was 938.71 and federal tax = 93.87, state tax =9.39, so I received a net check for 835.45.  Where do I enter the tax taken out?

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Pleas ask a new question of your own and describe the details  and not add on to an unrated thread.

https://ttlc.intuit.com/community/taxes/discussion/02/202