How to report refunded excess contribution of 401k

[johnsantaclara]

Hi there,

I changed jobs in June. My new employer cut more 401k than max. allowed. So they got Fidelity to refund the overpayment. But my W2 box 12D till shows the old amount and my employer is not willing to correct the W2. Please confirm if I should manually correct the 12D W2 entry in Turbotax to show the new amount (after the refund) or should I leave it as is. Thank you.

[DanaB27]

No, you do not change the entry on your W-2. If you took corrective actions and add the excess deferral with the steps below then you can ignore the warnings in TurboTax. Excess deferrals won't calculate a penalty like excess IRA contributions do. 

Please follow the steps below:

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 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 2023 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.