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macuser_22
Level 15

Excess deferral to 401k for 2019 taxes


@romeshdaisy wrote:

I have been reading through all the posts on excess 401K deferrals. In the end I am still not 100% sure what is the right way to go ahead with filing with TT. In my case the 2019 excess deferrals check came to me before April 15, 2020 and the reason was that my employer company failed to satisfy the ADP test. I received a check for $ 12000/- together with a statement from the plan provider that gave its break-up of Excess amount of $10500 plus Earnings of $2500.

The point that is unclear to me pertains to this narrative in macuser_22 post:

"Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Schedule 1 (Form 1040), line 21, and identify it as “Loss on Excess Deferral Distribution.”

Enter as:
Miscellionious Income ->
Other reportable Income ->
Any Other Taxable Income (yes) ->
Description (enter "Loss on Excess Deferral Distribution" and amount as a negative number)."

Does it mean that you report a loss on a corrective distribution of an excess deferral in the 2020 return?

WHAT I DID SO FAR IS THAT I ADDED $10500 AS MISCELLANEOUS  INCOME AND FOLLOWED EXACTLY WHAT IS SAID ABOVE.

IS THAT ALL I HAVE TO DO FOR THE 2019 RETURN ON THIS COUNT?

ANY HELP WOULD BE EXTREMELY APPRECIATED.

Thanks in advance!


Before you do that, ask the plan trustee how it will be reported.    If the employer plan made the error with the ADP test and the excess is returned under the "Employee Retirement Income Security Act" (ERISA) then that is totally different and the employer must issue a 1099-R with a code E in box 7 and that is reported in the tax year returned with the 1099-R, not as an excess deferral.   You would report the 2020 1099-R next year when doing 2020 taxes.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Country Apple
Level 4

Excess deferral to 401k for 2019 taxes

@romeshdaisy Yes, I have the same situation that you mentioned.  My employer failed ADP testing and had to return excess 401(k) deferrals to about 6 employees.  This is for 2018 deferrals.  Checks were issued by Fidelity and returned to employees prior to April 15, 2019.  Employees received a 2019 1099-R, with a distribution code 8 in box 7 which has the definition of (Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2019.  So under these circumstances, we would not add the excess deferrals to our 2018 income because they are taxable in 2019 -- the year of distribution.

romeshdaisy
Returning Member

Excess deferral to 401k for 2019 taxes

OK thanks for sharing your experiences.

DOES IT NOW MEAN THAT I NEED NOT SHOW THE EXCESS DEFERRAL RECEIVED IN MARCH 2020 AS ADDITIONAL INCOME IN 2019 RETURN? AND THAT I CAN SHOW IT AS ADDITIONAL INCOME IN 2020 RETURN AFTER I RECEIVE 1099R IN EARLY 2020???

macuser_22
Level 15

Excess deferral to 401k for 2019 taxes


@romeshdaisy wrote:

OK thanks for sharing your experiences.

DOES IT NOW MEAN THAT I NEED NOT SHOW THE EXCESS DEFERRAL RECEIVED IN MARCH 2020 AS ADDITIONAL INCOME IN 2019 RETURN? AND THAT I CAN SHOW IT AS ADDITIONAL INCOME IN 2020 RETURN AFTER I RECEIVE 1099R IN EARLY 2020???


Whether it gets reported on your 2019 or 2020 tax return depending on what code the payer puts into box 7 on the 1099-R that you will get in 2021.   You might just need to wait for the 1099-R to find out if it gets reported on an amended 2019 return (if it is code P) or 2020 (if code E).

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
romeshdaisy
Returning Member

Excess deferral to 401k for 2019 taxes

Thank you for explaining.

Actually I just talked to the plan administrator and he said that when we get the 2020 1099R (should be received in first quarter of 2021), it would have code 8 in box 7.

I AM FILING MY 2019 TAX RETURN IN A DAY OR TWO (BEFORE THE JULY 15TH DEADLINE OF COURSE!)

JUST TO REFRESH MY INFO AGAIN, I HAD RECEIVED THE 2019 EXCESS DISTRIBUTION CHECK OF $12,000 WELL BEFORE 15TH APRIL 2020.

SO DO I IGNORE THIS DISTRIBUTION WHILE I AM FILING MY 2019 RETURN NOW? WOULD I THEN NEED TO SHOW IT IN 2020 RETURN THAT I WILL FILE IN 2021 (BASED ON 2020 1099R WITH CODE 8 IN BOX 7 THAT I EXPECT TO RECEIVE IN EARLY 2021).

Thanks in advance.

macuser_22
Level 15

Excess deferral to 401k for 2019 taxes


@romeshdaisy wrote:

Thank you for explaining.

Actually I just talked to the plan administrator and he said that when we get the 2020 1099R (should be received in first quarter of 2021), it would have code 8 in box 7.

I AM FILING MY 2019 TAX RETURN IN A DAY OR TWO (BEFORE THE JULY 15TH DEADLINE OF COURSE!)

JUST TO REFRESH MY INFO AGAIN, I HAD RECEIVED THE 2019 EXCESS DISTRIBUTION CHECK OF $12,000 WELL BEFORE 15TH APRIL 2020.

SO DO I IGNORE THIS DISTRIBUTION WHILE I AM FILING MY 2019 RETURN NOW? WOULD I THEN NEED TO SHOW IT IN 2020 RETURN THAT I WILL FILE IN 2021 (BASED ON 2020 1099R WITH CODE 8 IN BOX 7 THAT I EXPECT TO RECEIVE IN EARLY 2021).

Thanks in advance.


A code 8 indicates that this is a *2020* excess, not a 2019 excess so nothing goes on the 2019 tax return at all.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Country Apple
Level 4

Excess deferral to 401k for 2019 taxes

Based on my own experience, if your 2019 over-contribution (due to employer ADP testing failure) was refunded to you before April 15, 2020, then you will receive a 2020 1099-R in January 2021.  You would include the 1099-R in your 2020 return (if code 8 is used in box 7) and it will be added to your income and taxed as regular wages.  TurboTax added my 1099-R to my regular W2 wages.   This is how I do it, as my employer's plan fails ADP testing every year and I will receive a 1099-R every year.

 

There is guidance out there that says you should include the over-deferral amount in your 2019 wages.  You may opt to do that, however, you will definitely receive a 1099-R for the year in which actual distribution occurs.  Then you will have to explain to the IRS that you already reported the 1099-R in the previous year.

macuser_22
Level 15

Excess deferral to 401k for 2019 taxes


@Country Apple wrote:

Based on my own experience, if your 2019 over-contribution (due to employer ADP testing failure) was refunded to you before April 15, 2020, then you will receive a 2020 1099-R in January 2021.  You would include the 1099-R in your 2020 return (if code 8 is used in box 7) and it will be added to your income and taxed as regular wages.  TurboTax added my 1099-R to my regular W2 wages.   This is how I do it, as my employer's plan fails ADP testing every year and I will receive a 1099-R every year.

 

There is guidance out there that says you should include the over-deferral amount in your 2019 wages.  You may opt to do that, however, you will definitely receive a 1099-R for the year in which actual distribution occurs.  Then you will have to explain to the IRS that you already reported the 1099-R in the previous year.


A 2019 excess returned in 2020 should have two 1099-R's - one with a code P that puts the excess on the tot for line 1 as wages, and one wit s code 8 that only reports the earnings which are taxable in the year returned which would be 2020.

 

A single 2020 1099-R with a code 8 that contains the the excess and earnings in box 1 and 2a is for a 2020 excess deferral and not a 2019 excess.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
witwib
Level 1

Excess deferral to 401k for 2019 taxes

Hello,

 

I'm using the 2nd option to enter excess deferral (other income -> excess deferral + explanation) to cover an amount returned to me in April.  However, TurboTax is flagging missing 1099 information and is insisting I need to fill out missing details for a 2019 1099-R form.  Has anyone else run into this problem?  There doesn't seem to be a way to tell it that this will be on a 2020 1099-R form.   FYI - I've received the 2020 1099-R form with code "P" already.

macuser_22
Level 15

Excess deferral to 401k for 2019 taxes


@witwib wrote:

Hello,

 

I'm using the 2nd option to enter excess deferral (other income -> excess deferral + explanation) to cover an amount returned to me in April.  However, TurboTax is flagging missing 1099 information and is insisting I need to fill out missing details for a 2019 1099-R form.  Has anyone else run into this problem?  There doesn't seem to be a way to tell it that this will be on a 2020 1099-R form.   FYI - I've received the 2020 1099-R form with code "P" already.


If you actually *have* the 2020 1099-R code P then you must use that and not the "2nd option".   Enter the code P 2020 1099-R into  TurboTax 2019 and the interview will ask if it is a 2020 1099-R- say yes.  Delete the "other income" entries that you made.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
nik_sharma
Level 2

Excess deferral to 401k for 2019 taxes

Hi @macuser_22 ,

Thank you for detailed instructions but I do want to request another confirmation from you. I found a number of websites online (LLCs / benefits / community boards) that are saying that the removal of excess salary deferral has also been postponed to July 15. Do you have an IRS link or official statement from the .gov that shows that the relief is not extended to July 15 2020? That would be very helpful!

 

Here's a link to the IRS relief statement: https://www.irs.gov/pub/irs-drop/n-20-23.pdf

Page 8, Section C states:

"C. Relief With Respect to Specified Time-Sensitive Actions Affected Taxpayers also have until July 15, 2020, to perform all Specified TimeSensitive Actions, that are due to be performed on or after April 1, 2020, and before July 15, 2020. This relief includes the time for filing all petitions with the Tax Court, or for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax. This notice does not provide relief for the time period for filing a petition with the Tax Court, or for filing a claim or bringing a suit for credit or refund if that period expired before April 1, 2020."

 

I realize this is an eleventh hour request but hoping you can devote some time to this inquiry! Appreciate your input and interpretation on section C above.

 

Thanks!

 

macuser_22
Level 15

Excess deferral to 401k for 2019 taxes

AFAIK the notice refers to tax filing and payment relief for taxpayers.   The Apr 15 date is the date that an 401(k) plan administrator must return the excess and earnings by.   I see nothing that extends the date for employer plans.

 

I will ask another user.

@dmertz   do you have any other information about this.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Country Apple
Level 4

Excess deferral to 401k for 2019 taxes

Here is the IRS bulletin regarding deadline extensions for certain things:

 

https://www.irs.gov/pub/irs-drop/n-20-35.pdf

 

ck128
Level 1

Excess deferral to 401k for 2019 taxes

Dear macuser_22

           Thank you for your expert input so far.  Do you have any inputs (NOT advice, we know the wording) for folks found out this before 7/15 deadline, but unlikely to get Fidelity to cut the check before 7/15?   I think the folks won't want to file an amended return, but can expect the Fidelity to refund the excess after 7/15.

           Fidelity has a PDF form for this, search "return of excess contribution 401k fidelity", use the one with workplaceservices in URL.

          And if Fidelity does do the refund, then there won't be a double tax scenario because there is no extra money when distributing the 401K in the future, right?

          And only if Fidelity will not refund (after 4/15 or after 7/15), then this is a double tax situation, correct?

   

 

macuser_22
Level 15

Excess deferral to 401k for 2019 taxes


@ck128 wrote:

 

          And if Fidelity does do the refund, then there won't be a double tax scenario because there is no extra money when distributing the 401K in the future, right?

          And only if Fidelity will not refund (after 4/15 or after 7/15), then this is a double tax situation, correct?

   

 


If the excess plus any earnings are not returned by the date specified by the IRS then it will be a taxable distribution.      In addition, if you are under age 59 1/2 it will also be subject to a 10% early distribution penalty.    It would make little sense to remove it after the date and not just leave it in the plan to continue to grow.  

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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