Return of Excess-Roth IRA- Box 4 Tax Withholding

[AC113]

Hello,

I made an excess contribution to my Roth IRA in 2021. I got married in 2021 so therefore realized our combined income was too high and therefore made an excess contribution. I went through Fidelity to process a Return of Excess and had my contribution, plus the earnings, as calculated by Fidelity, returned to my bank account (This process was performed this year, February 2022). I understand that I will get a 10% penalty for early withdrawal as well as regular tax on the earnings and receive my original contribution amount back with no taxes or penalties.

Now my question comes with when and how to report.

I have already seen this information:

"You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options: 

• You can wait until you receive the 1099-R  2022 in 2023 and amend your 2021 return or
• You can report it now in your 2021 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2022 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything in 2022 tax return but the withholding will be applied to 2022.

To create a 1099-R in your 2021 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount under "Another reason" if you are over 59 1/2 (if you under 59 1/2 click "Continue")"

My question is in regards to the portion that states: "Unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding."

1. How do I know if there is Box 4 Federal Tax withholding and/or Box 14 state withholding if I will not have my 1099-R until next year (~January 2023)?

2. On the Fidelity IRA Return of Excess Contribution Request Form I completed, in Section 5: Tax Withholding Elections, there are the options to, a) Do Not withhold federal taxes and b) Withhold federal taxes at a rate of __% (I put the standard response 10%). There was a similar question for state withholding and I checked the box to withhold state taxes at the applicable rate. (In looking at the distribution I later received, I got back my full original contribution, and my earnings minus 10%, which I believe is from the federal taxes mentioned?)

In doing so, did I shoot myself in the foot here, and now am unable to file this transaction for my 2021 taxes and have to file in 2022 with an amended 2021 return next year? 

3. If indeed I "shot myself in the foot" by electing to withhold the appropriate taxes, do I have to mention anything in Box 1, 2a or 7 for the taxes I am completing now in 2021, or do I do nothing and list it all in my tax return next year for 2022? I am worried about reporting nothing as in one section of advice on TurboTax it states "If you didn't get a form 1099-R, you need to report the earnings anyway."

Your help in this matter would be so greatly appreciated!

Thanks!

AC113

[DanaB27 · Accepted solution]

1. You can check with your financial institution. But you do not have to enter any tax withholdings when you create Form 1099-R for the withdrawal of excess contribution plus earnings on your 2021 tax return.

2. No, you still can create Form 1099-R on your 2021 tax return since you do not need to enter the tax withholdings on your 2021 tax return. They belong on your 2022 return because they were withheld in 2022.

3. You will create the Form 1099-R like this:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Leave Box 4 federal withholdings and Box 14 state withholdings blank.
10. Click "Continue"
11. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount under "Another reason" if you are over 59 1/2 (if you under 59 1/2 click "Continue")

Next year on your 2022 return you will have to enter the 2022 Form 1099-R with code P and J as well to have the taxes applied to 2022. Just enter the Form 1099-R as received, the 2022 code P will not do anything in 2022 tax return but the withholding will be applied to 2022.