How do I report excess 401k contribution? I have withdrawn the excess amount: one is for the excess deferral and another for the income attributed to the excess deferral

[MSE1]

I will receive 2x 1099-R forms by Jan 2023 but don't have that information yet to report it on my current tax year.
It seems that I need to fill in a 1099-R to the best of my knowledge, my question is whether box 1 and 2a should be the excess deferral only or excess deferral and earned income.
In addition, how should I check the state income taxes boxes on that 1099-R

[DanaB27 · Accepted solution]

You must include the excess deferral in your wages in the year the excess deferral happened.

Please follow the steps below to report your excess deferral:

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

If you receive the distribution of the excess deferral and earnings then please note for the Tax Year 2022 tax filing due April 15, 2023: 

2022 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2021. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2022.

Since the excess deferral is added to your regular wages on line 1, it will be taxable income on your state return.

[CAR4143610]

I must report a form 8915-E, which is not generated.
how do I get it?

[DanaB27]

I assume you mean you need Form 8915-F for a disaster retirement distribution (like the COVID distribution in 2020). Form 8915-F isn't ready in TurboTax. Please see IRS forms availability table for TurboTax individual (personal) tax products for updates.

Once the section is available follow these steps to report any further tax to be paid or any repayment:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. If you do not have any 2021 1099-R answer "No" to "Did you get a 1099-R in 2021?" (If you have any other 1099-R then enter all 1099-R and after entering your last 1099-R click "Continue" on the “Review your 1099-R info” screen)
5. Answer "Yes" to the "Have you ever taken a disaster distribution before 2021?" screen

@4143692

[CAR4143610]

Thanks, I did it like that and then it tells me:

You'll need to revisit this area 

Unfortunately, changes related to qualified disaster distributions and repayments weren't ready in time for us to include them in this release. Please revisit this area later.

[FangxiaL]

You are getting that message because Form 8915-F is not ready for e-file as of today. But it should be ready sometime next week.

Federal Individual Form Availability.

@CAR4143610

[mmgaeta]

I reported the excess deferral on our 2021 taxes as you described. I have a question on the 1099-R we received for tax year 2022. Boxes 1 and 2a have the excess deferral amount reported in 2021, box 7 has  code 8, but there are no earnings included. There is federal and state income tax withheld in boxes 4 and 14. How do I report this for 2022?

[MarilynG1]

Here's info on 1099-R with Code 8 in Box 7. 

Since you removed your excess deferral in 2021, this 1099-R reports the wages as income that was deferred previously.

[mmgaeta]

Thank you for your reply, but I still have a question. The excess deferral was reported on our 2021 taxes and included in our wages. The excess was removed on 2/15/2022 (before the April deadline). But now when I enter the 1099-R for 2022 it is showing the distribution as Other Earned income. So it seems like we are being taxed on this amount twice, both in 2021 and 2022.

[DianeW777]

The key is the code in Box 7, Form 1099-R. It seems like it should be 'P'.

• 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2022.
• P—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021.

Enter in Box 2a only the earnings which is what is taxable in 2022.  If you removed the excess on time there is no excise penalty of 6%. However if you're under 59 1/2, the government will also charge you a 10% early withdrawal penalty on any earnings you withdraw. This will trigger Form 5329 in TurboTax because of the age (if you are under 59 1/2).

• If you catch your mistake before the tax filing deadline for the year, AND you remove the excess before you file your taxes, there is no 6% penalty.  You have to remove your excess contribution and any earnings attributable to that excess contribution. 

Using the correct code in 2022 should eliminate any taxation of the distribution in 2022 with the exception of the earnings. Double check the entries and your code on your Form 1099-R.

@mmgaeta 

[mmgaeta]

I agree, it seems like the code in Box 7 should be 'P', but it is '8'.

If I enter code 'P' instead in Turbo Tax then it gives me a message 'It looks like you may need to amend your 2021 return'. It doesn't show the amount as Other Earned Income (which I believe is correct since it was reported in 2021), but I don't know if I can enter something different than what is on the 1099-R.

[DanaB27]

Yes, I agree you should have a 2022 Form 1099-R with code P for the returned excess deferral which is added to your 2021 wages since you made an excess deferral in 2021 that you removed in 2022 before the deadline of April 15th. Only the earnings distributed would be reported with code 8 in your case and these have to be included in your 2022 wages. 

You don’t need to amend your 2021 tax return because you had already included it on your return. 

I would contact the issuer and ask to correct the Form 1099-R. Please see this information from Pub 525:

“You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Use the following rules to report a corrective distribution shown on Form 1099-R for 2022. 

•  If the distribution was for a 2022 excess deferral, your Form 1099-R should have code 8 in box 7. Add the excess deferral amount to your wages on your 2022 tax return. 
• If the distribution was for a 2022 excess deferral to a designated Roth account, your Form 1099-R should have codes B and 8 in box 7. Don’t add this amount to your wages on your 2022 return. 
• If the distribution was for a 2021 excess deferral, your Form 1099-R should have code P in box 7. If you didn't add the excess deferral amount to your wages on your 2021 tax return, you must file an amended return on Form 1040-X. If you didn't receive the distribution by April 15, 2022, you must also add it to your wages on your 2022 tax return. 

If the distribution was for the income earned on an excess deferral, your Form 1099-R should have code 8 in box 7. Add the income amount to your wages on your 2022 income tax return, regardless of when the excess deferral was made

[scwills]

I worked for two employers in 2022 and accidently over contributed ~ $4500 to my 401(k) accounts when I look at the combined contributions in 2022.  I reported and requested excess returned and received the a check for excess contribution prior to April 15, 2023.  I have attempted to report this additional $4500 of Wage Income in in 2022 tax return under Misc Income, "other income not already reported on a Form W-2 or Form 1099" and then under "Any Other Earned Income", then selected "Employee compensation that was not reported on a W-2", then skipping forward to "Report Your Wage Income" I entered my employer's name and total wages received (that were not reported on my @w-2 because they were excess contributions).  But, it forces a reason code that does not fit my situation.  Where can I write this is an excess contribution to my 401k that I have withdrawn prior to April 15, 2023?

[DanaB27]

Please make sure, to select "Other" on the "Enter Source of Other Earned income" screen (don't select "Employee compensation that was not reported"). On the "Any Other Earned Income" screen enter "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

@scwills