TurboTax shows excess 401K contribution for 2018. Requested Plan admin refunded excess amount and earning on Feb 2019. What should I do to file tax return for 2018?

[sahoo_deepak]

Any update Please, Can I do efile for have to paper file, even after modifying excess 401K contribution by choosing adding 1099R/Add to other income under excess Salary deferral. Any help is highly appreciated. I am really stuck...what to do, hate to do paper file, but if I have to then I will but need second opinion. Thanks in advance.

[dragonfly_turbo]

TurboTax has stated that efile does not work for people like our situation (even with the latest software patches). So the only option is to paper file it via US Postal Services. Just printed out as I have indicated above and print out the 1099-R with the method I suggested. I would file both together so IRS knows that the extra amount is for "Excess Income Deferral". The code "8" in box 7 of 1099-R will indicate that this is for 2018 excess 401K contribution. So when you get the real 1099-R next January 2020. You can just ignore that since you already took care of it in 2018 tax return.
Just remember don't try to efile it. It doesn't look like TurboTax will fix it.
Best Luck!

[sahoo_deepak]

Thanks dragonfly_turbo !!!

[user4902]

Hi there - I was in the same boat last year, but I was not aware of TT's issue of not including the 1099-R. Do you know if I can figure out if I did the right thing by looking at my tax return numbers?

[DaveF1006]

it may but we wouldn't be able to view it here in community. You may wish to contact a specialist that can view your return to see if you did it correctly.

[echoasia]

I got the check before April 15th (let's say April 10th).   Let's say the 401k excess amount was $10000.  The check I got was $7000 (30% withheld).     If I enter $10000 into TurboTax (for the current year), my tax goes up the extra $3000.   

Doesn't this mean I am double-taxed ?    They say they will send 1099-R next year, and suggested to contact TurboTax to find where to enter the withheld amount (or rate) for the excess $10000.     

Where do I enter the withheld amount ($3000) in TurboTax?  

[Moussa Nancy]

I don't agree with the advice given regarding how to report the distribution of an excess contribution to a 401K plan. The important thing here is that the amount of excess contribution was distributed before the deadline. Taxpayer must wait until they receive form 1099-R, the year after, in order to report the transaction in their tax return. If 1099-R has code P in box 7, they will amend prior year return and add the 1099-R. If it has code 8 in box 7, it will be added to the tax year it was issued. Keep in mind that the plan administrator will withhold taxes from the excess contribution. Reporting the excess contribution by adding it to the wages before receiving the form 1099-R, will not take in consideration the tax withheld, nor the earnings that will be added to Box 1. Bottom line, wait until you receive form 1099-R in order to report the transaction in your tax return.

[macuser_22]

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@Moussa Nancy wrote:

I don't agree with the advice given regarding how to report the distribution of an excess contribution to a 401K plan. The important thing here is that the amount of excess contribution was distributed before the deadline. Taxpayer must wait until they receive form 1099-R, the year after, in order to report the transaction in their tax return. If 1099-R has code P in box 7, they will amend prior year return and add the 1099-R. If it has code 8 in box 7, it will be added to the tax year it was issued. Keep in mind that the plan administrator will withhold taxes from the excess contribution. Reporting the excess contribution by adding it to the wages before receiving the form 1099-R, will not take in consideration the tax withheld, nor the earnings that will be added to Box 1. Bottom line, wait until you receive form 1099-R in order to report the transaction in your tax return.

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If you know the amount of the returned excess then it is not necessary to wait for the 1099-R and amend.  The only IRS requirement is that the returned excess be added to the 1040 line 1 (wage) income.   The 1040 is the ONLY thing that is sent to the IRS so it is immaterial how it got on line 1.  TurboTax has a method specifically  for this and is named "excess deferrals".

This is reported for the tx year in which the excess was made.

(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 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.

[Moussa Nancy]

Hi,

This is my first time posting on TT Community. I am impressed that it is a pretty interactive tool.

First, thank you for your explanation. The issue here is that the 1099-R that will be issued next year has more than the returned excess reported on it. It will have some earnings, probably a few dollars, and mainly the tax withheld, federal and state. How to handle the 1099-R next year if you already added the returned excess to the wages in the current return?

Thanks!

Nancy

[macuser_22]

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@Moussa Nancy wrote:

Hi,

This is my first time posting on TT Community. I am impressed that it is a pretty interactive tool.

First, thank you for your explanation. The issue here is that the 1099-R that will be issued next year has more than the returned excess reported on it. It will have some earnings, probably a few dollars, and mainly the tax withheld, federal and state. How to handle the 1099-R next year if you already added the returned excess to the wages in the current return?

Thanks!

Nancy

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It should not.    If the earnings are included on a 1099-R with a code P then it is an improper 1099-R because a code P can never report earnings.   The excess is reported  returned wages in the tax year that the excess was made and the earnings taxed in the year returned.

The earnings can only be reported on a separate 1099-R with a code 8 that is reported on the 2020 tax return.

For information see IRS 2019 Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

[quote]

"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 2019** income tax return, regardless of when the excess deferral was made.

**NOTE the latest IRS Pub is for tax year 2019, that will become 2020 for the 2020 tax year.

[Moussa Nancy]

How about the taxes withheld?

[macuser_22]

If tax was withheld on the returned contribution then that would be in box 4 on the 1099-R with the code P.   You would also enter that into your 2020 tax return.   The box 1 amount will be ignored in 2020 but the box 4 tax withholding will be added to all other W-2 and 1999 withholding.

Tax withheld on a return of excess deferrals is a really bad idea since the excess must be reported and taxed in the year the excess was made but the withholding applies to the tax year that the withholding was done.

The only time that  would all be on one 1099-R is when the excess deferral and the return of excess is all in the same tax year, then only one 1099-R is issued with a code 8 for that that year.   A code P always means that the excess occurred in the previous tax year.

[Moussa Nancy]

It is clear to me now why we are not agreeing on this matter. Simply because I've seen a 1099-R with code 8 being issued for a prior year return of excess, with federal and state tax withheld. What you are saying this should not be case, code P must be used when the return is for a prior year deferral. In fact it happened to me:):):)  I received the check in January of 2019 saying that I over contributed to my 401K in 2018. Knowing that they will issue a 1099R by January of 2020, I didn't do anything about it in my 2018 tax return. I wasn't sure what the code will be, but I decided to wait. In January of this year I received the 1099-R with code 8 and taxes withheld for both federal and state. I am not sure why they issued it this way, but it worked for me and I didn't have to amend 2018. Thank you so much for your time! This has been a very informative conversation.

[macuser_22]

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@Moussa Nancy wrote:

It is clear to me now why we are not agreeing on this matter. Simply because I've seen a 1099-R with code 8 being issued for a prior year return of excess, with federal and state tax withheld. What you are saying this should not be case, code P must be used when the return is for a prior year deferral. In fact it happened to me:):):)  I received the check in January of 2019 saying that I over contributed to my 401K in 2018. Knowing that they will issue a 1099R by January of 2020, I didn't do anything about it in my 2018 tax return. I wasn't sure what the code will be, but I decided to wait. In January of this year I received the 1099-R with code 8 and taxes withheld for both federal and state. I am not sure why they issued it this way, but it worked for me and I didn't have to amend 2018. Thank you so much for your time! This has been a very informative conversation.

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The IRS rules on this are very clear in the PUB.   You can receive a code 8nof a prior year s contribution but that is for the earnings. 

A 2018 excess would be reported on a 2019 1099-R code P.    You cannot receive a 2020 1099-R for a 2018 excess because the date to have it returned expired on Apr 15, 2019.

[imangoldasteh]

@macuser_22 

I am going to exactly use the method you described, so my question is can I deduct the amount that I've received (excess 401k) by check from my W2 box 12? 

I have only my original w2. In the case can I deduct that amount from box 12 (401K) while I keep box 1 the same and just use the method you mentioned to pay my taxes and filing?