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My employer made a mistake and I ended up with excess contributions for my 2018 401k. I was told that I'd receive a 1099-R form in 2020 for both the 2018 excess contributions and 2019 earnings on excess deferrals. They indicated that I need include the excess deferral as additional gross income in my 2018 taxes.
According to turbo tax instructions under "Steps to Take to Remove an Excess Salary Deferral", on step 4 it indicates I should:
4. Report the excess deferral on your 2018 return in the Income section for Retirement Plans and Social Security whether or not you received a Form 1099-R before you file your return. Enter as much information as you can. Report the excess deferral amount in boxes 1 and 2a, and use code P in box 7. Indicate that this is a 2019 Form 1099-R.
However, code P indicates that the excess contributions were for 2017. Should I use code 8 in box 7 instead? If not, how do I indicate that this a 2019 1099-R substitute form?
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You do not need to wait for a 1099-R next year that will probably require you to amend your 2018 tax return to report the excess on line 7 of your tax return - it can be entered this way and then ignore the 2018 1099-R with a code P in box 7 when it comes.
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) ->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.
[Note: If there were any earning that were returned in 2019 then the earnings will be reported on a separate 2019 1099-R with a code 8 that goes on your 2019 tax return - do not enter the earnings here.]
This will add the returned excess to your 2018 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
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