2022 Excess Contribution Return - Amended Return Help Needed

Your hunch is correct.  You should amend your 2022 tax return.  The 1099-R you will receive from the 401(k) administrator in Jan 2024 will have a Distribution Code P in Box 7 (Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2022.)  See page 7 of the 2023 1099-R, linked below.  

https://www.irs.gov/pub/irs-pdf/f1099r.pdf

I found this answer to an earlier question.  It was on a 2018 excess contribution with a 2019 1099-R with a Distribution Code P

https://ttlc.intuit.com/community/taxes/discussion/1099-r-code-p-what-to-do/00/1442903

Thanks for taking the trouble to respond.

I am wanting to file my Amended Return before Oct. 15, 2023 and so would prefer to not wait until the 1099-R is issued in Jan. 2024.

So my hope was to get enough help and clarity as to how to go back into Turbotax, Amend my 2022 Return by adding this Excess Contribution just distributed and pay the additional tax and be done with it.

I am not clear on what all i need to in Turbotax, how to “self-generate” the 1099-R (with the right inputs for each box entry) and go about finishing the Amended Return.

I will hope there will be additional input to help me get those answers.

Thanks for your input!

You don't need an actual copy of the 1099-R as you don't need to attach it to your amended 1040X tax return.  So I don't see why you couldn't amend the 2022 tax return now as you should know the employer name, address, ID#, amount, distribution code, etc on the 1099-R.  So just enter them into TurboTax.  Based on what you wrote in the OP, I'm pretty sure your wife's 2023 Form 1099-R will have a P Distribution Code in Box 7.  But you should contact HR at her former employer to make sure that's the case.   

I'm no TurboTax expert.  Here's a previous answer to a similar question:

https://ttlc.intuit.com/community/after-you-file/discussion/where-do-i-enter-1099-r-code-p-when-amending-a-prior-year-tax-return/00/533365

A 2018 1099-R with a code "P" in box 7 is taxable in 2017, the year the contribution was made, not 2018.

You must amend 2017 to report it. The 2017 1099-R interview will say that code P means "Return of contribution taxable in 2016", but the interview will ask if this it a 2017 1099-R or a 2018 1099-R. Say 2018 and the "taxable in 2016" becomes "taxable in 2017" (the year advances by 1 each year).

It is not reported in 2018 unless there were earnings in which case the earnings should be reported on a separate 2018 1099-R with a code 8 on box 7 to be reported in the year the earnings were returned.

The end result is that you will increase taxable wages by the amount of the excess 401(k) DEFERRAL in the amended 2022 tax return on Line 1 of the 1040.  The earnings are taxed in 2023.  

https://www.irs.gov/instructions/i1099r#en_US_2023_publink[phone number removed]

Excess deferrals.

Excess deferrals under section 402(g) can occur in section 401(k) plans, section 403(b) plans, or SARSEPs. If distributed by April 15 of the year following the year of deferral, the excess is taxable to the participant in the year of deferral (other than designated Roth contributions), but the earnings are taxable in the year distributed.

Dana - @DanaB27 

Mike - @Mike9241 

@macuser_22 

Hi all - sending this plea for help to you all as I saw you’ll have responded to similar issues.  

I am specifically trying to figure out what ALL the boxes in the 1099-R I create in TurboTax for the Amended Return will look like.

Any input is gratefully appreciated!

Thanks,

@AMS2022 

"P" is for prior and that is what you will see next year telling you to amend the prior year.

This year you want a second distribution code of "8".

that will put your positive earning of $50 from Box 2a on Line 5b (given that it's not an IRA)

Pick a distribution code that allows "8" as the second code.

First code "2" works.

If you want to e-File this, you probably will need a Payer's TIN.

@AMS2022 

First code "2" alone without a second code also works.

@AMS2022 

@guywong - Thanks for following up.

Between your feedback and my own reading/research, I think i am making progress.

Now one thing i am stuck on a little bit is on the information I need to populate in the 1099-R (2023 issue) that i self-create.  Specifically, i=I had mentioned in my original post that:

6. Excess amount was $2900.98 and earnings on that were $50.19 - total $2,951.17.  

Now 1099-R Box 1 is Gross Distribution.  So that would be $2,951.17.  But in the 1099-R Instructions, it says Box 2a is “earnings”.  Which per above would be $50.19.

Page 11, under section on IRA Excess Contributions, instructions say the following:

“• For a distribution of contributions plus earnings from an IRA before the due date of the return under section 408(d) (4), report the gross distribution in box 1, only the earnings in box 2a, and enter Code 8 or P, whichever is applicable, in box 7. Also, enter Code 1 or 4, if applicable.”

It says above that Box 2a is “only the earnings”.  So do I input $50.19 there or the full ‘$2,951.17?

I have been unable to find anything that provides clarity.

Per your earlier input, Box 7 code would be “P” (1099-R I generate would be a 2023, so that P refers to 2022 which is in fact the Filed Return I am Amending, so good there).

Any further input, please?

please refer to my reply above for clarity

your allocable earnings are $50 after rounding.

as I mentioned, a second code "8" is extraneous.

@AMS2022 

@fanfare  - I have now received the excess contribution + earnings check.

From all my reading, I can now, before Oct. 15th, 2023, file an Amended Return for 2022.  For that, I need to add a new 1099-R relating to this distribution.  But as long as I do so before Oct. 15, it should add this entire distribution to my 2022 income as regular income and i will therefore have additional taxes due as well.

But that will require a 2023 1009-R (creation, by me) and P code to indicate it is a return of 2022 excess contributions.  

So my question on Box 1 vs. Box 2a still remains given the amounts.

This is consistent with @guywong has highlighted in his responses.

" it should add this entire distribution to my 2022 income as regular income"

that's not right. you don't pay tax on your return of excess.

the taxable amount  is $50.

Use the 1099-R as I suggested and you will get the correct result.

@AMS2022 

Box 1 is $2951.

@AMS2022 

@AMS2022 IMO, Box 1 of the 1099-R for the excess deferral should be $2,900.98 with a distribution code "P" and there should be a second 1099-R for the $50.19 earnings.  The reason for two 1099-R's is that the excess deferral is taxed in the year of contribution while the earnings are taxed in the year of distribution.

I reread your OP.  There are a couple of problems in your situation.  

First, the 2022 excess deferral was not distributed by April 15, 2023.  Secondly, the excess plus earnings came out of your wife's rollover IRA, the IRA trustee may not know or care whether the excess was an "excess deferral" or an "excess contribution".  As a result, the IRA trustee may treat that as an "excess contribution".  If so, they may simply lump everything together and issue just one 1099-R for $2,951.17 with a distribution code 8 in Box 7.  So it's imperative that you talk with IRA trustee on how they will issue the 1099-R before you do anything. 

Finally, I want to point out there is a difference between "Excess Deferral" and "Excess Contribution".  I believe you're situation qualifies as an "Excess Deferral".  I'm assuming your wife put in no more than the 401(k) limit of $20,500 (or $27,000 if she's age 50 or older), was an executive at the company where she worked and her 401(k) contribution was subject to some sort of "top heavy" rules. 

If the $2,900.98 were an "excess contribution", then that would be taxed in the year of distribution, in other words, it would be taxed in 2023 and no 2022 amended tax return would be required.

If your main purpose is to limit penalties and interests, you can always pre-pay an estimated amount equal to $2900.98 multiplied by your tax bracket at www.irs.gov.  But that's probably not worth the potential hassles.

Here another link for your reading:

https://www.mysolo401k.net/removing-excess-deferrals-when-contributing-to-multiple-retirement-plans/

@fanfare - This return of excess contribution came from a 401(k) account that upon retirement was rolled over into a Traditional IRA.  However, it appears the excess was generated in the 401(k) due to a mix of employee and employer contributions.  Nonetheless, the letter we received said it was my wife’s excess contribution of $2900.98 and $50.19 earnings for a total of $2,951.17 that was just removed.  The excess was in 2022.  The return just a couple of weeks ago.

It would seem that the entire amount has to be taxable - as are funds removed from 401(k) or IRA that are both tax sheltered until removal.

That is why the Box 1 and 2a are causing some confusion.  If I only enter the $50.19 in box 2a and that is all that is taxed, what about the original $2900.98 which hasn’t been taxed?

If you want your entire distribution taxed,

enter the distribution in Box 1 and Box 2a.

do not check any 2b box.

Use distribution code 2.

@AMS2022 

@fanfare @guywong 

Thank you both for your help!  It is sincerely appreciated.

I will proceed with amending the 2022 with the following actions which I will document here in case someone else has a similar issue. My issue was outlined in my original post of this thread.

I will go ahead and prepare and submit an Amended 2022 Tax Return by going into TT and creating a 1099-R for the year 2023.  That is, the 1099-R will be a 2023 dated addition.

Box 1 will have the total of the excess contribution ($2900.98) + the earnings (NIA) of $50.19 = $2951.17

Box 2a will be the same total amount of $2951.17 as the entire amount needs to be taxed in 2022.  

Box 7 will have a Code of “2 P”.  The 2 is because my wife retired in 2022 and so there is an exception to the early distribution even though she is under age 59 1/2.  The code P is to denote that the 2023 1009-R is in reference to excess contribution return of the prior year, 2022, and will be taxed as 2022 income.

That should be it, other than the obvious Payer/Payee information which I will fill out.

In the 1040-X section on Notes, I will add both verbiage from the Excess Contribution letter we received informing us of the need to address this amount and the IRS recommended Note for the Amendment which says “Pursuant to 301.9100-2” which draws attention to the 2022 Tax Filing have the automatic (default) extension to Oct. 15, 2023 date since the original 2022 return was filed “Timely” by April 15, 2023.  That is, this Amendment falls within the scope and timing of the default extension allowed to correct the 2022 Return as needed here.

That should hopefully do it.

Thanks again to you both

@AMS2022

[[ removed ]]

@AMS2022 

Never mind.

 I take it back.

Go ahead and try it your way.

@AMS2022 

@AMS2022 u wrote, "Box 2a will be the same total amount of $2951.17 as the entire amount needs to be taxed in 2022. "  That's wrong.  It should be $2,900.98, the amount of the excess deferral.  Earnings is taxed in the year of distribution, not the year of contribution.  See my post from yesterday and the Thomson Reuters link below.  Once again, assuming the $2,951.17 was distributed to your wife by the IRA trustee, you should contact the IRA trustee to make sure they will be coding the excess deferral with a "P" in Box 7.

Since the money was distributed after April 15, 2023, you have a different problem.  I believe the only way out is if you live in a federally declared disaster area such as most counties in California where the original filing due date has been postponed to mid October.  

https://www.irs.gov/retirement-plans/consequences-to-a-participant-who-makes-excess-annual-salary-deferrals

Correcting excess deferrals

The excess deferrals can be correcting by distributing the excess (including earnings) by the due date of your tax return. 

Consequences if excess is not corrected

If the excess is not timely distributed, it is:

1. included in your taxable income for the year contributed, and
2. taxed a second time when the deferrals are ultimately distributed from the plan.

The excess deferrals may not be distributed until a distribution is otherwise permissible under the terms of your plan. Additionally, you do not receive basis in the excess deferrals.

https://tax.thomsonreuters.com/news/irs-reminds-taxpayers-to-remove-excess-salary-deferrals-by-april-15/

For a taxpayer who withdraws excess salary deferrals, plus earnings, by April 15, 2022:

• Excess deferrals are taxed as 2021 income.
• Earnings on excess deferrals are taxed as income in the year withdrawn (2022).
• Excess deferrals aren’t subject to the 10% early distribution tax, 20% withholding, or spousal consent requirements.

However, if taxpayers with excess deferrals don’t withdraw those excess deferrals, plus earnings, by April 15, 2022:

• Excess deferrals are taxed as income in 2021 and again when they are withdrawn.
• Earnings on the excess are taxed in the year withdrawn.
• Withdrawals may be subject to the 10% early distribution tax, 20% withholding, and spousal consent requirements.

To avoid double taxation, taxpayers who have exceeded the contribution limits should ask their plan administrator to distribute any excess amounts to them before April 15, 2022.

@guywong - amazing how something could be this complex.  But I imagine the entire IRS tax code is that way.

To your latest comments, here are my thoughts.

First, I have seen in numerous places that the NIA portion of an Excess Contribution is taxed in the year of the contribution, not actual distribution.

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See this link, https://www.thetaxadviser.com/issues/2020/apr/correcting-excess-contributions-iras.html and

the following excerpt from it:

Eliminating excess contributions by making corrective distributions

The 6% excise tax on an excess contribution may be avoided by making a "corrective distribution," provided no deduction has been allowed for the contribution. An IRA makes a corrective distribution by timely distributing the amount of the excess contribution, together with any accumulated net income attributable to the excess contribution.

A corrective distribution is timely if it is made by the extended due date of the taxpayer's tax return for the tax year of the contribution.17 That date is normally Oct. 15 of the calendar year following the year the taxpayer made the contribution (even if the taxpayer did not need or obtain an extension of time to file his or her return). However, if the taxpayer did not file a timely return for the year of the contribution, the taxpayer must complete the corrective distribution by April 15 of the year following the year of the contribution.18

If the conditions for a corrective distribution are met, the original contribution is treated as if it had not been made.19However, the distribution of income earned by the IRA on the excess contribution is taxable in the year of the contribution and is subject to the early-distribution penalty, unless an exception applies.20

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Also see Instructions for 1099-R, page 11:

Traditional, SEP, or SIMPLE IRA. Generally, you are not required to compute the taxable amount of a traditional, SEP, or SIMPLE IRA or designate whether any part of a distribution is a return of basis attributable to nondeductible contributions. Therefore, except as provided below or elsewhere in these instructions, report the total amount distributed from a traditional, SEP, or SIMPLE IRA in box 2a. This will be the same amount reported in box 1. Check the “Taxable amount not determined” box in box 2b.
Active participation begins with the first month in which an employee became a participant under the plan and ends with the earliest of:
• The month in which the employee received a lump-sum distribution under the plan;
box 7. See Regulations section 1.1011-2(c), Example 8.
• For a distribution by a trust representing CDs redeemed early, report the net amount distributed. Do not include any amount paid for IRA insurance protection in this box.
• For a distribution of contributions plus earnings from an IRA before the due date of the return under section 408(d) (4), report the gross distribution in box 1, only the earnings in box 2a, and enter Code 8 or P, whichever is applicable, in box 7. Also, enter Code 1 or 4, if applicable.

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Next see this example on page 34 of Pub 590-A:

Form 1099-R. You will receive Form 1099-R indicating the amount of the withdrawal. If the excess contribution was made in a previous tax year, the form will indicate the year in which the earnings are taxable.
Example. Maria, age 35, made an excess contribution in 2022 of $1,000, which she withdrew by April 18, 2023, the due date of her return. At the same time, she also withdrew the $50 income that was earned on the $1,000. She must include the $50 in her gross income for 2022 (the year in which the excess contribution was made). She must also pay an additional tax of $5 (the 10% additional tax on early distributions because she isn’t yet 591/2 years old), but she doesn’t have to report the excess contribu- tion as income or pay the 6% excise tax. Maria receives a Form 1099-R showing that the earnings are taxable for 2022.

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In the example above, clearly the $50 NIA is taxed in year 2022, the year OF the excess contribution, NOT the distribution which occurred in April of 2023.

Now - where I was hung up was what amounts to enter in Box 1 and 2a.  If I only entered the $50.19 of NIA in Box 2a, I was afraid that the $2900.98 excess contribution would escape taxes and cause a problem.

So being conservative, I left both Box 1 and 2a with the total $2951.17, used Code P, ensured the 1099-R I created in TT was identified as 2023 (so that the P referred to 2022 - the year of the excess contribution AND the year I Amended) and filed it today.

The IRS return (e-file) was accepted and the additional tax I owe will be pulled on Monday.

I guess now time will tell if this is all correct or not.  But I have effectively “paid my dues” to the best of my understanding.

Thanks,

@amS2022