Report excess salary deferrals (excess 401k contributions)

[PCmd]

hello

I had two jobs in 2022 and 401K contribution from both employers.

There is $11 excess salary deferrals.

Contacted the Agency for a return of $11.

My question : How do I report that $11 as my normal income in 2022 tax?

 As i see in one post (please see below)

Best answer

 MinhT1

Employee Tax Expert

a week ago

You should report the excess contribution in 2022. This excess will be added to Wages to be taxed. The reason is that the excess had been wrongly excluded from taxation on your form W-2 in 2022. This excess will not be taxed again in 2023. Only the gain realized on the excess (if any) will be taxed in 2023.

This is how you report the excess contribution.

Report excess salary deferrals (excess 401k contributions) returned to you after the end of the tax year but by April 15th of the following tax year on your 1040.  Do not create your own 1099-R for this situation.

Pages 10 and 11 of IRS Pub 525 under Excess deferrals (the IRS term for 401K contribution is deferral) tells us: 

If your deferrals exceed the limit, you must notify your plan by the date required by the plan. If the plan permits, the excess amount will be distributed to you. If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. The plan must then pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. You must include the excess deferral in your income for the year of the deferral. File Form 1040 or 1040-SR to add the excess deferral amount to your wages on line 1a.

What you earned will be covered by a 1099-R for the following tax year and will be entered then as a normal 1099-R.

Below is how to do this in TurboTax:

1. Click on Federal in the left-hand column, then on Wages & Income
2. Continue and locate the section Less Common Income
3. Select Miscellaneous Income and click Start
4. Select Other income not already reported on a Form W-2 or Form 1099 and click on Start
5. Answer the question "Did you receive any other wages?  Yes
6. Click through the questions till you get to Any Other Earned Income
7. Answer Yes to Did you earn any other wages?
8. Indicate Other as Source of Other Earned Income and click Continue
9. For the description enter "2022 Excess 401K Deferrals" and click on Done

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Followed the steps.

i am seeing those $11 in line 1h.

But as in the IRS information (see pasted from Turbo tax post) that $11 should go to line 1a. I am pasting the last line below:

"File Form 1040 or 1040-SR to add the excess deferral amount to your wages on line 1a."

I will highly appreciate if you please clarify the confusion.

Thank you

[DanaB27]

Yes, line 1h is correct. 

According to the instruction of Form 1040 1h: "Excess elective deferrals. The amount deferred should be shown in box 12 of your Form W-2, and the “Retirement plan” box in box 13 should be checked. If the total amount you (or your spouse if filing jointly) deferred for 2022 under all plans was more than $20,500 (excluding catch-up contributions as explained later), include the excess on line 1h."

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: 

• 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 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.

[PCmd]

Thank you very much for the information.

As i mentioned i already contacted the company who is holding my 401K. They are sending me the excess amount $11. But they also told me that i will receive the 1099-R next year (2024).

I am reporting that excess $11 in my 2022 tax line 1h.

Do I need to submit the same again in 2024?

Thank you

[DanaB27 · Accepted solution]

No, since you reported the excess on your 2022 tax return you can ignore Form 1099-R with code P in box 7. 

But if you had earnings on the excess these will have to be reported on your 2023 tax return. You will get Form 1099-R with code 8 in box 7 for these earnings, this has to be entered on your 2023 tax return.

@PCmd 

[PCmd]

Thank you very much for a very clear answer.

[Maggie882]

I have entered my excess 401k distribution from 2022 into Turbo Tax as 'Other Income' per the instructions above and labeled it 2022 Excess 401k deferrals.  The plan sponsor returned the excess distribution to me in 2023 and provided me with the amount of federal taxes withheld.  Where do I enter the amount of the federal tax withheld in turbotax?

[DanaB27]

If you had taxes withheld then you will enter the 2023 Form 1099-R next year on your 2023 tax return because the taxes withheld in 2023 can only be applied toward 2023. 

Please keep in mind you will get two 2023 Forms 1099-R:

• Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2022 (if this form shows the taxes withheld then you will enter it on your 2023 return but TurboTax will know to ignore the distribution amount because of the code P and only apply the taxes)
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

@Maggie882 

[sujan1997]

Do we need to get any corrected W-2 from the employer whose plan is issuing the 1099-R?