Need advice one on how to file two 1099-R received at different years for same Excess 401K contribution

[TahaTax2018]

I had over contribution on my 401K at 2020 [It was not on my side but company it happened as company did not meet salary guide for contribution to allow me for full contribution that was allowed by IRS]. In 2021, I changed my employer and rolled over all my 401K to new one [Fidelity]. However, I did receive corrected 1099-R for 2020 for over contribution in 2021 [Reason I received late was company mistake as I explained above] and older company also told me I need to just file it and not take more actions [Another mistake as I noticed later that I need to withdraw it].  The first 1099-R that I did receive was corrected one for 2020, Box 7 shows code 8 and Taxable amount was 9200$ in Both Box 1 and 2a. I did file it as it is on my 2021 tax return.  

As explained, I noticed I need to withdraw money, then I contacted Fidelity [As I did transfer all older 401K that over contribution happened to it]. After long discussions, Fidelity processed it in 2022 and sent me a check that was ~7200$ and issued new 1099-R for 2022. New 1099-R box 7 code is "E" and Box 1 and Box 2a are 7950$ with Federal and state tax withheld [The reason I have got less in my check that Box 1]. As you can see, I had file more income in 2021 than what actually I got paid in 2022. Now I taxed double and wondering How I can claim credit and avoid double taxation in my 2022 return. 

I appreciate any advice and help!

[DanaB27]

Please be aware, if you do not take out the excess amount by April 15th (the following year, so in your case 2021), 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 details.

To confirm, they issued you 2020 Form 1099-R with code 8 without any distribution? And this 2020 Form 1099-R was reported on your 2020 return (since it was a 2020 excess)?

Generally, you will include the excess deferral in the year the excess was made as wages. If you receive it before April 15th of the following year then are done. But if you receive the excess after April 15th then you will have to report the distribution again. Therefore you are taxed twice. This is the penalty for not removing it in time.

[TahaTax2018]

Thanks a lot for explaining in detail. The excess contribution was not on my side but it was because company did not meet compliance for 2020. But they noticed it in 2021 and send me letter at Dec of 2021. That time, I was with new employer and money already rolled over into new plan.  Then, I did start to withdraw from new employer program that took long time and it got finished in mid of 2022.

To answer you questions: 

To confirm, they issued you 2020 Form 1099-R with code 8 without any distribution? Yes

And this 2020 Form 1099-R was reported on your 2020 return (since it was a 2020 excess)? Not, I got it late of 2021 and filed it as it is for tax return of 2021 and it was added to my income by turbotax. at 2021.

[DanaB27]

If it was a 2020 Form 1099-R with code 8 then you would have to amend your 2020 and 2021 tax returns because a 2020 Form belongs on the 2020 tax return.

Yes, unfortunately, you will be taxed twice since you withdrew the excess after April 15th, 2021. Please include the 2022 Form 1099-R on your 2022 tax return.