@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
