Excess deferral to 401k for 2019 taxes

[marty00]

@vartech seems to have added the income to 2019 tax return. The employer has returned the excess but withheld the taxes now, in 2020.  The question seems to be ... how is this to be handled? 

BTW, in my case, I checked the box stating "Do not withhold" federal or state taxes ... haven't seen the check yet but hopefully, it is of the full amount as I have already paid the taxes as income in 2019, else I will be in the same boat at vartech.  

[ck128]

@marty00 ,  thank you for your kind words.  I am glad my post was helpful.  In fact I could've been more helpful but this site will not allow me to post the link to PDF form and the new fax number, but the mobile app way to upload form and W2 is definitely something new and not mentioned in the PDF form.   

I already received my check on Monday, BRAVO Fidelity!  On my check is the full excess amount plus earning, no tax was withheld.

There is also a Distribution Statement comes with the check, on the back it says:

"

Return of Excess Distribution

It has been determined that you made an deferrals in excess of the 402(g).  ....The amount  of the excess deferral and earnings (less the Roth, if any) are taxable to you in 2020.  In January 2021, you will receive an IRS Form 1099-R reflecting this corrective distribution.

Your excess deferral amount is $XXX and your earnings amount is $XXX"

Again I got the full amount plus earning.   I will follow the earlier advice and ignore the 1099-R that was the excess amount (because I already paid tax this year) and pay only the tax on the earnings.

Big Thanks to @macuser_22  and @MinhT1 for their awesome replies.  You guys rock!

Again Turbo Tax's owe example is wrong for creating your own 1099R.

[craigmills4600]

For 2020, "Examples of Excess Salary Deferrals" examples indicate that I SHOULD manufacture a 1099R and report Code P.  This does not align with the discussion found here for the previous year.  Should I add the Excess Deferral amount as Wages on line 7?  Do I list the total distribution as wages?  I'm confused. 

[macuser_22]

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@craigmills4600 wrote:

For 2020, "Examples of Excess Salary Deferrals" examples indicate that I SHOULD manufacture a 1099R and report Code P.  This does not align with the discussion found here for the previous year.  Should I add the Excess Deferral amount as Wages on line 7?  Do I list the total distribution as wages?  I'm confused. 

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If it is a 2020 excess deferral then the returned amount does go on the 1040 line 1 (line 7 was prior years 1040).

Either  the 1099-R with a code P or the Miscellionious Income puts it there - they both do the same thing.

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 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

[DVE]

I had an excess contribution in 2020. That's all sorted out with a check. I've seen the advice (in multiple places on these forums) for using Miscellaneous Income to report an excess contribution. However, TTax's checks and help, and the IRS publication, seem to indicate that I should create my own 1099-R with a code 8 for the excess contribution. As part of this, it creates a Form 4852, with reasons given why I didn't get a 1099-R (and it's because I'll only get one for the excess contribution in 2022 with a code P). Similar answers it seems for both line 9 and 10 on that form. Which is the actual correct way to do it? The latter seems to be the "official" way.

I did see a post earlier that indicated that creating your own 1099-R can lead to hassles next year...

[macuser_22]

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@DVE wrote:

I had an excess contribution in 2020. That's all sorted out with a check. I've seen the advice (in multiple places on these forums) for using Miscellaneous Income to report an excess contribution. However, TTax's checks and help, and the IRS publication, seem to indicate that I should create my own 1099-R with a code 8 for the excess contribution. As part of this, it creates a Form 4852, with reasons given why I didn't get a 1099-R (and it's because I'll only get one for the excess contribution in 2022 with a code P). Similar answers it seems for both line 9 and 10 on that form. Which is the actual correct way to do it? The latter seems to be the "official" way.

I did see a post earlier that indicated that creating your own 1099-R can lead to hassles next year...

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Doing it your way is sure to lead to an IRS letter.

If it created a 4852 you did it wrong.  You do NOT use a substitute 1099-R to do this.   You just create a regular 1099-R and file it early.   Since you have not received the 1099-R yet you have nothing to substitute for.

That is one reason that I prefer the Misc income method - there is less confusion and the both do EXACTLY the same thing - put the returned excess on the 1040 line 1 and nothing other then the 1040 is sent to the IRS.

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 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

[DVE]

Thanks! I'll do it this way then.

[TheExit55]

@macuser_22 

Question regarding the step in option 2 below in Red. If I have already made the withdraw of the excess 2020 contribution from my individual 401K... Can I enter the 2020 contributions to individual 401K in the "elective Deferrals" box as my Contribution less the excess withdraw I've already done? I.e (it would equal the amount of "maximize contribution to individual 401K). And then keep the amount of the excess deferral blank and add the explanation "2020 Excess 401K Deferrals" in the step below?

And if there were any earning that were returned in 2021 then the earnings will be reported on a separate 2021 1099-R with a code 8 that goes on my 2021 tax return - I would not enter the earnings on my 2020 tax return. Thanks for your help!

or 2)
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.

[macuser_22]

You enter the amount of the excess that was returned not including earnings only.    

[ck128]

Hi all: 

Here is another post answering this question.

https://ttlc.intuit.com/community/retirement/discussion/exceeded-401k-contribution-what-should-i-do/...

[TheExit55]

Thank you @macuser_22!

Last clarifying question, Do I enter the 2020 contributions to individual 401K in the "elective Deferrals" box as my Contribution less the excess withdraw I've already done?  Or the total amount contributed including the excess?

And then in the any other income - enter the amount of the excess deferral and an explanation which you stated would be the amount of the excess that was returned not including earnings only?

[macuser_22]

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@TheExit55 wrote:

Thank you @macuser_22!

Last clarifying question, Do I enter the 2020 contributions to individual 401K in the "elective Deferrals" box as my Contribution less the excess withdraw I've already done?  Or the total amount contributed including the excess?

And then in the any other income - enter the amount of the excess deferral and an explanation which you stated would be the amount of the excess that was returned not including earnings only?

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The amount of the excess returned minus any earnings returned.  If you do not know that amount then just wait for the 1099-R that will be sent to you.

[TheExit55]

@macuser_22 thanks understand that.   

My specific question is:

Do I put in the 2020 contributions to individual 401K in the "elective Deferrals" box  $5,000 (total amount I contributed including excess)   or $3,000 (total amount I contributed after excess was withdrawn)?

I understand that in the Any other income section -  I would enter amount of the excess that was returned not including earnings which would be $2,000.

I really appreciate the help!

[macuser_22]

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@TheExit55 wrote:

@macuser_22 thanks understand that.   

My specific question is:

Do I put in the 2020 contributions to individual 401K in the "elective Deferrals" box  $5,000 (total amount I contributed including excess)   or $3,000 (total amount I contributed after excess was withdrawn)?

I understand that in the Any other income section -  I would enter amount of the excess that was returned not including earnings which would be $2,000.

I really appreciate the help!

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Neither one as I said above.  You enter only the amount that was returned to you not including any earnings that were also returned.

For example:

Amount contributed = $6,000

Amount in excess= $2,000

Amount returned = $2,300 (The $2,000 excess plus $300 earnings)

Amount to enter = $2,000.

The earnings will be reported later with a separate 1099-R for the year returned.

[TheExit55]

@macuser_22    I was specifically asking about what I put in for the less common business situations- Self-employed Retirement (individual 401K)?  This section is located under Business Income and Expenses.

since I enter only the amount that was returned to me not including any earnings that were also returned in a different section (Personal income- miscellaneous)