Excess deferral to 401k for 2019 taxes

[orangelena]

The thread is so helpful!

I got my excess contribution and some taxes were taken out of it. Do I include those taxes in 2020 filings (and where?) together with the excess contribution which I got back? Or will they be reported in 1099R for 2021 since I paid them in 2021? thank you

[dmertz]

Taxes withheld on a return of contribution made in 2021 will be credited on your 2021 tax return, not on your 2020 tax return.

[arenganathan1951]

@dmertz 

turbotax  example instruction which matches my scenairo( i got excess contribution of $93 returned by the plan adminstrator) says - 

 Enter As if i got a 1099-R with the overpayment amount in boxes 1 and 2a and code P in box 7, even though i did not get 10990-R. 

Should i follow this 1099-R path or report it on  Form 1040  line 1?

Example 1:

Jessica is 45 years old and changed jobs in 2020 She contributed $15,000 to her 401(k) plan at her first job. She contributed $16,000 to her 401(k) plan at her second job. Because the maximum she can contribute in 2020 is $19,500, Jessica put too much money into her 401(k) accounts. She figured this by taking the difference between her total contributions ($31,000) and the maximum she can contribute ($19,500). This overpayment (called an excess salary deferral) must be withdrawn as soon as Jessica discovers it, and no later than the filing deadline (normally April 15, 2021) to avoid additional taxes.

Jessica notifies the plan administrator of her second job, and they issue her a refund of the overpayment plus earnings. She reports this on her 2020 return as if she received a Form 1099-R with the overpayment amount in boxes 1 and 2a and code P in box 7.

On her 2021 return, Jessica enters the forms she received from the plan administrator. Only the earnings on the overpayment will be added to Jessica's 2021 income.

[macuser_22]

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@arenganathan1951 wrote:

Should i follow this 1099-R path or report it on  Form 1040  line 1?

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A code P *does* put it on the the 1040 line 1 the exact same way as the Miscellaneous income method does.   (Two ways to do the same thing.)   Take your pick -  but the Miscellaneous income method is less pron to errors - many people get confused by the 1099-R interview questions.

[arenganathan1951]

okay thanks, yes 1099-R is confusing and will put in miscellaneous income.

In the cheque note says as below, i guess mine is all excess contribution and no earnings on it, and i will report this exact amount on miscellanous income. Please correct if different.

tax information

Ordingary income 100% taxabale amount         93.63

Gross Distribution                                                     93.63

Type:Excess Deferral

[macuser_22]

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@arenganathan1951 wrote:

okay thanks, yes 1099-R is confusing and will put in miscellaneous income.

In the cheque note says as below, i guess mine is all excess contribution and no earnings on it, and i will report this exact amount on miscellanous income. Please correct if different.

tax information

Ordingary income 100% taxabale amount         93.63

Gross Distribution                                                     93.63

Type:Excess Deferral

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Correct.    Because deferrals were not included in your W-2 box 1 taxable wages, then you must report the excess as taxable wages on the 1040 line 1.  

[Toyinb1]

Hi. I have an excess contribution because I switched in 2020. Unfortunately, I was not able to get the return on excess because I’m past the deadline . How do I report this with minimum penalty ?

[macuser_22]

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@Toyinb1 wrote:

Hi. I have an excess contribution because I switched in 2020. Unfortunately, I was not able to get the return on excess because I’m past the deadline . How do I report this with minimum penalty ?

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Excess 401(k) deferrals should be reported in:
(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 2020 wages on line 1  to add to your taxable income.

[DawnC]

You have until 05/17/21 to remove the excess contributions and earnings to avoid a penalty.   If you don't remove it, add the excess contributions back to your wages.  

To add your excess 401(K) contribution to your wages:

1. Sign in to TurboTax and open or continue your return.
2. Select the Federal Taxes tab.
3. Go to the Wages & Income tab.
4. Select I'll choose what I work on.
5. Go to Less Common Income and select Show More.
6. Go to Miscellaneous Income and then select Start, Update or Revisit.
7. Select Other income not already reported on a Form W-2 or Form 1099 and then select Start.
8. Answer Yes to the question Did you receive any other wages?
9. Select Continue through the questions until you get to the screen, Any Other Earned Income.
10. Answer Yes to Did you earn any other wages?.
11. Indicate Other as the Source of Other Earned Income and select Continue.
12. For the description, enter 2020 Excess 401(K) Deferrals and select Done.

What if I have a 401(k) excess deferral?      @Toyinb1

[macuser_22]

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@DawnC wrote:

You have until 05/17/21 to remove the excess contributions and earnings to avoid a penalty.   If you don't remove it, add the excess contributions back to your wages.  

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That is not correct.  IRA excess can be removed by the filing date or extended filing date not 401(k) excess.

May 17 is the filing date.    The date for elective deferral corrections is set by law to be April 15 and is not tied to the filing date.      The filing date can be changed by the Secretary, as it was for 2020, but the April 15, excess date can only be changed by a tax law change.

That has mislead some taxpayers to believe they have until May 17 to remove the excess only to find out from the plan administrator that 4/15 was the actual date.

See internal Revenue Code 26 CFR § 1.402(g)-1(e)(2)(i)

(2) Correction of excess deferrals after the taxable year. A plan may provide that if any amount is an excess deferral under paragraph (a) of this section:

(i) Not later than the first April 15 (or such earlier date specified in the plan) following the close of the individual's taxable year,

[sxk10000]

Hi @macuser_22 , If you are still following this thread, I understand I am well past the April 15 to get the excess 401 k contribution removed. With tomorrow (May 17) being the last day to file the claim, the earlier method (using Miscellaneous income) to add the excess back to taxable income is something I can do right? Thanks!

[macuser_22]

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@sxk10000 wrote:

Hi @macuser_22 , If you are still following this thread, I understand I am well past the April 15 to get the excess 401 k contribution removed. With tomorrow (May 17) being the last day to file the claim, the earlier method (using Miscellaneous income) to add the excess back to taxable income is something I can do right? Thanks!

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Correct if this was a 2020 excess,  It must be included in your income whether returned or not.

[sxk10000]

Thanks @macuser_22 . I called my 401k administrator, they said their cut off to report excess contribution was March 15, 2021. I unfortunately did not know this and missed it. They said they are not allowed to issue a refund now and asked to get advice from a tax advisor. Please let me know if this will be a good next step for me.  1. Add the excess 2020 contribution as Miscellaneous income when I file today 2. Looks like I may not receive 1099-R since the current administrator does not know how much I overcontributed? So when I withdraw the excess amount during retirement, I will pay tax again (double taxation! :-() - correct?

Thanks again

[macuser_22]

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@sxk10000 wrote:

Thanks @macuser_22 . I called my 401k administrator, they said their cut off to report excess contribution was March 15, 2021. I unfortunately did not know this and missed it. They said they are not allowed to issue a refund now and asked to get advice from a tax advisor. Please let me know if this will be a good next step for me.  1. Add the excess 2020 contribution as Miscellaneous income when I file today 2. Looks like I may not receive 1099-R since the current administrator does not know how much I overcontributed? So when I withdraw the excess amount during retirement, I will pay tax again (double taxation! :-() - correct?

Thanks again

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The actual cut-off date was April 15.    Yes, you must reported it as wages under misc. income, and yes, it just becomes part of your 401(K) and will be tax the same as any other 401(k) distribution.     That is the penalty for not removing before Apr. 15.    No 1099-R because no distribution.

[sxk10000]

Thanks again. You are right, the deadline was April 15, the March 15 date was from the administrator so they get enough time to process the excess. Anyways, it is past now. I will file my taxes today with the excess added to the income. When I withdraw during retirement, I will make sure to withdraw such my tax bracket is low enough to cut the double taxation loss...:) Cheers Mate!