Incorrect 1099-R Codes

[SJH57]

In 2022, I overcontributed to my employee 401k and 457b employer sponsored retirement plans, but didn't realize it until I was doing my taxes for 2022 in 2023. I alerted the plan and the principal and interest was distributed to me ($21 principal and $1.21 interest for each of the plans), however I neglected to inform them that the withdrawal was due to an over-contribution. Using the advice of TT, I listed the $42 over-contribution on my 2022 return using the "file a distribution without a 1099-R". For 2023, I received a 1099-R from each fund, and because I neglected to inform the plan when I took the distribution, the total distribution in Box 7 has a "P" code. How do I account for this on my return (and the amount of the 1099-R is for the principal and interest). I believe I should be paying tax only on the interest from both funds which totals $2.42? thanks so much for your assistance. Steve

@DaveF1006  @DanaB27 @dmertz 

[dmertz]

Code P suggests that they knew the distributions were to correct excess contributions.  Because the corrective distributions occurred in 2023, I would expect that the $1.21 in each case would have been reported on code-8 2023 Forms 1099-R except that filing these forms is not required for amounts less than $10.  Omitting this $2 (rounded) of income from your 2023 tax return would likely be considered to be a de minimis error.

If the code-P 2023 Forms 1099-R report $21 each, you don't need to do anything with these since the income was already reported on your 2022 tax return.

[SJH57]

@dmertz  thank you for the response. My 2023 1099-Rs box 1&2 list $22.85, Box 7 Code P, which is the principal of $21 plus the interest of $1.85 for each fund. I declared the principal over contribution on my 2022 return, and want to declare just the interest of $1.85 for each fund on my 2023 return. One part of me wants to just enter the 1099-R as is and just pay whatever the tax is on the total even though I already paid the tax on the principal on my 2022 return. It doesn't seem right to change the numbers on the 1099-R. Are there any other remedies for this?

[dmertz]

Code P on a 2023 Form 1099-R means taxable in 2022.  Unless you want to amend your 2022 tax return to add $4 of income to agree with the Forms 1099-R, which has a less than 10% chance of changing your tax liability, I would ignore these forms.

[SJH57]

thanks so much for your response. The reason I didn't report the interest on my 2022 return is that the funds were distributed to me in 2023, so I reported the principal on my 2022 return since the over-contribution occurred then, and was advised to report the interest in 2023. I believe you are correct about the interest not affecting my tax, as I added the 1099-R to my return as received, and it didn't change anything. So, I will keep the 1099-R forms I received but not enter them and assume that I've accounted appropriately for the over-contribution on my 2022 return. Appreciate your assistance this year and last, and your other responses to their questions as well, as they are also helpful. Steve

[SJH57]

Hello,

I've been trying to figure this out, and in so doing, I added the 2023 1099-Rs to my 2023 return. It sucessfully added them, but my tax liability didn't change, and I received a message that I may have to amend my 2022 return.

Am I correct in assuming that (as you noted) that the "P" code is triggering the message about amending my 2022 return? If that's true, is it safe to enter the 1099-rs on my 2023 return, and not amend my 2022 return since I have listed (through the missing 1099-R feature), the principal of $22 for each account, and the only unaccounted income is the interest from my over-contribution of $1.21 from each of the accounts? thanks any assistance you can provide, Steve

[dmertz · Accepted solution]

Other than to remind you that any amount shown in box 2a is reportable on your 2022 tax return, 2023 TurboTax will properly ignore a 2023 Form 1099-R that includes code P in box 7 except to credit on your 2023 tax return any tax withholding shown on the form.

Given the small amount of additional income that reporting this would add to your 2022 tax return, it probably is not worth amending.