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?

Forum|Forum|7 years ago
June 5, 2019
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MinhT1

Level 15

Reporting excess salary deferrals (excess 401k contributions) returned to you after the end of the tax year but by April 15th of the following tax year on your 1040. Do not create your own 1099-R for this situation.

Page 10 of IRS Pub 525 under Excess deferrals (the IRS term for 401K contribution is deferral) tells us to include the excess deferrals as income on line 7 of Form 1040 if the money was returned after the end of the tax year but by April 15th of the following tax year. You need to report only the excess contribution, not any money generated by the investment of the excess contribution. What you earned will be covered by a 1099-R for the following tax year and will be entered then as a normal 1099-R.

Below is how to do this in TurboTax:

Click on Federal in the left-hand column, then on Wages & Income
Under All Income, scroll down to Less Common Income
Select Miscellaneous Income and click Start
Select Other income not already reported on a Form W-2 or Form 1099 and click on Start
Answer the question "Did you receive any other wages? Yes
Click through the questions till you get to Any Other Earned Income
Answer Yes to Did you earn any other wages?
Indicate Other as Source of Other Earned Income and click Continue
For the description enter "2018 Excess 401K Deferrals" and click on Done

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sahoo_deepak

Level 2

TurboTax has a help link "how to fix Excess Contribution to 401K" with 3 specific examples. It says Create a 1099R (with whatever information you have) even you have not received yet(will receive in 2019 for 2018 excess 401K contribution) and select code "P" in the box(Weird though as P says for tax year 2017, which is not the case) and mark the 1099R as 2019. But my question is where will I get other info like Payer Tax ID, State Tax Id, address etc.(Those may not be same as employer stated in W2, I don't know until I get the real 1099R from my company and those needed to fill the 1099R) and Support here saying don't create 1099R for this scenario. Really confused what to do, Could Turbo tax support please clarify. Please help..!!! -Thanks.

DaveF1006

Level 15

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.

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Moussa Nancy

Level 2

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

Alumni - Champ

@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.

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.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

Moussa Nancy

Level 2

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