401k Over Contribution Question

[shadbow]

I had an over contribution in 2022 due to changing jobs.  I notified the plan administrator, and they issued a check with federal taxes withheld in April 2023. I will get a 1099-R in 2023 for this 2023 check.  Do I include an estimated 1099-R for 2022 Tax year?  or do I simply enter my W-2's as is, and no estimated 1099-R since it will come for the 2023 tax year?

[DanaB27 · Accepted solution]

Please follow the steps below to add the excess deferral to your 2022 wages (line 1h of Form 1040):

1. Login to your TurboTax Account 
2. Click "Wages & Income" (under Federal) on the left side of your screen
3. Scroll  down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2023 tax filing due April 15, 2024: 

2023 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2022. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

Please be aware, if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

Please see Pub 525 for additional information.

[shadbow]

What about the taxes withheld on the distribution check? If I put in the other income, where do I enter this additional tax withheld? And isn't this income and tax in 2023 if check was issued 3/30/2023?

[DanaB27 · Accepted solution]

No, "you must include the excess deferral in your income for the year of the deferral" (Pub 525). Therefore, a 2022 excess deferral has to be included in your 2022 income.

The taxes withheld will be listed on the 2023 Form 1099-R with code 8 and this will be entered next year on your 2023 tax return. The withheld taxes will be applied to your 2023 taxes due.