Should I be reporting extra contribution to 401k in 2019 on my 2019 tax return using 8995 form?

[abhishekguglani]

I filed my personal tax return for 2019 using Turbo Tax for the first time. Turbo Tax prompted that my wife had contributed more than the allowed 19k towards the 401k. She basically switched jobs and this resulted in the excess amount. I followed the instructions on what to do per what was recommended by Turbo Tax Q&A. I called the employer and got the excess 401k contribution taken out. 

Turbo Tax recommended reporting the excess amount on Form 8995-A on my 2019 tax return and I did that. I basically followed the instruction on the Turbo Tax article 'How to report over contribution in 401K for 2017 on 2017 tax return without a 1099R?' and looked at some online tutorials for it. 

I have filed the tax return as of 3 weeks ago. I have two concerns:

• For 8995-A is for reporting Qualifying Business Income deduction. I see the details on the form that Turbo Tax attached to my tax return. The form has no business address etc.. I don't have a business address to add there. I am concerned that IRS will find this form as incomplete and my refund will be delayed. 
• The amount we got back from my wife's employer for the excess 401k contribution is different from what was Turbo Tax calculated. The excess contribution is lower than what I put 8995-A. Do I need to correct this on my 2019 Tax return or simply add the actual amount returned on 2020 tax return?

[macuser_22]

The 8995 form has nothing whatsoever to do with excess 401(k) deferrals.

The amount return should include any earnings attributed to the excess but the earnings are not reported in the year of the excess, but in the year returned.   Only the excess is reported on your 2019 tax return and the earnings received in 2020 will be reported on your 2020 tax return.

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In your case, since you already filed 2019 there is  no reason to amend 2019 prior to actually receiving the 2020 1099-R in 2021- then you will need to amend 2019 to report it.   The methods given below are to *prevent* having to amend so there is no advantage of amending after filing and before receiving the 1099-R.

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You do not need to wait for a 1099-R next year that will probably require you to amend your 2019 tax return to report the excess on line 1 of your tax return - it can be entered this way and then ignore the 2020 1099-R with a code P in box 7 when it comes.

There are two methods to do this (I prefer the 2nd method because many people make errors or get confused by the 1099-R interview):

1) Enter a 1099-R with the returned contribution amount (not including earnings) in box 1 & 2a, and a code "P" in box 7. When asked what year 1099-R say 2020.

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.

This will add the returned excess to your 2019 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.

[Note: If there were any earning that were returned in 2020 then the earnings will be reported on a separate 2020 1099-R with a code 8 that goes on your 2020 tax return - do not enter the earnings here.]

Both methods will add the returned excess to your 2019 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.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

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).

[abhishekguglani]

Thanks macuser_22 for the detailed response. But was it right to put the excess contribution we did towards 401k in 2019 on the form 8995-A? I did not realize that Turbo Tax was going to use this form when I followed the steps on Turbo Tax software to report this excess contribution. And unfortunately I missed looking at this form when finalizing & submitting my tax return.  

8995-A is for reporting Qualifying Business Income deduction. I don't have a business. I don't know if this is the form that should have been used. Do I need to correct this now? When I look at this form as part of my tax return downloaded from Turbo Tax, I see it requires business address and that part is empty. I don't this is the form that Turbo Tax should have used for the need I had. Here are some IRS instructions for the form 8995-A: https://www.irs.gov/pub/irs-dft/i8995a--dft.pdf

My worry is that IRS will find this as an issue and tax refund will get delayed.

[macuser_22]

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@abhishekguglani wrote:

Thanks macuser_22 for the detailed response. But was it right to put the excess contribution we did towards 401k in 2019 on the form 8995-A? I did not realize that Turbo Tax was going to use this form when I followed the steps on Turbo Tax software to report this excess contribution. And unfortunately I missed looking at this form when finalizing & submitting my tax return.  

AFAIK the W-2 earnings for the 8995-A come from box 1 on the W-2 form that accounts for the excess deferrals because that money was in fact, not included in wages.   The IRS procedure for reporting excess deferrals is as I posted above and is silent about anything else that it might effect.  You cannot change what happened in the past, you can only pay the tax due for the excess deferral.

[macuser_22]

Actually if you mean the the amount of 2019 earned income that is used by the 8995 form then when you report the excess deferral on a 1099-R with a code P or by the misc income method, that excess is added back into the 1040 line 1 earned income as if the excess never occurred.