401k Refund due to the Failed Discrimination Compliance

SMS123 · ‎March 17, 2022

Hello..Need your advise..

I got a distribution check from ADP for 2021. It has wording of "You are receiving this distribution as a result of your plan's failure to satisfy one or more annual nondiscrimination compliance tests required under the Internal Revenue Code'.

I talked to employer and came to know as this is new plan which just started in the last quarter of 2021 my contributions exceeded the limit. Looks like I will be getting 1099-R for 2022 which I will be reporting it in the next yr taxes.

My employer mentioned that they will NOT reissue W-2 for 2021 even though it has incorrect amounts in the BOX #12. Is this okay? Should I go ahead and file the taxes for 2021 using the existing W-2?

Could you please advise?

Thanks!

DMarkM1 · ‎March 17, 2022

You will enter the form W2 just as your copy indicates. Then you will enter the excess contribution that was distributed to you as "Miscellaneous Income" following the steps below.

Click "Federal" from the left side of your screen
Scroll down to "Less Common Income" and click "Show More"
Select "Miscellaneous Income" and click Start or Update
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 "Continue" through the questions until you get to "Any Other Earned Income"
Answer "Yes" to "Did you earn any other wages?
Select "Other" as Source of Other Earned Income and click Continue
For the description enter "2021 Excess 401K Deferrals" and click on Done

When you report the Excess Contributions in this way, you won't need to go back and amend your 2021 return. When you get the 2022 1099R, just keep it for your records. The 1099R should have a code P in box 7 indicating the distribution was for excess contribution to 401K which you will have already taken care of.

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View solution in original post

DMarkM1 · ‎March 17, 2022

You will enter the form W2 just as your copy indicates. Then you will enter the excess contribution that was distributed to you as "Miscellaneous Income" following the steps below.

Click "Federal" from the left side of your screen
Scroll down to "Less Common Income" and click "Show More"
Select "Miscellaneous Income" and click Start or Update
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 "Continue" through the questions until you get to "Any Other Earned Income"
Answer "Yes" to "Did you earn any other wages?
Select "Other" as Source of Other Earned Income and click Continue
For the description enter "2021 Excess 401K Deferrals" and click on Done

When you report the Excess Contributions in this way, you won't need to go back and amend your 2021 return. When you get the 2022 1099R, just keep it for your records. The 1099R should have a code P in box 7 indicating the distribution was for excess contribution to 401K which you will have already taken care of.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

SMS123 · ‎March 17, 2022

Thanks for the reply. Since I received this check just last week(dated 03/2021) I should report this "Miscellaneous Income" in next year 2022 taxes, right?

@DMarkM1

Vanessa A · ‎March 17, 2022

Yes, if you did not receive the payment until March of 2022, you would wait to include it on your 2022 tax return.

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SMS123 · ‎March 17, 2022

Yes I just received last week..Thanks for the clarification

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401k Refund due to the Failed Discrimination Compliance