Smart check error for Form W-2 Nonqualified Distribution greater than box 1

[cshaid]

I'm getting a smart check error for Form W-2 Nonqualified Distribution greater than box 1. This is truly the case because I had to repay company for prior year tax settlement which lowered my box 1 wages to less than Nonqualified distribution. Is there no way to get passed this error and e-file my return or am I doomed to paper filing?

[AmyC]

You had to repay the company for a prior year. That does not affect w2 box 1 wages for this year. If you had to repay income that you thought was yours and you paid taxes on it last year, then normally you would take a credit for the difference in taxes that would have existed last year on this year's return.

Here are the step to achieve the desired results. 

• See Turbo Tax article What is a Claim of Right Repayment. which covers repayment for one year. If you repaid amounts from multiple years, you will need to do the same for each year.
• See also Pub 525 for examples of how to figure the credit. You will want to determine which is better for you, the credit or the deduction.
• If the credit is best, you will need to download the desktop version and move your .data file so you can pick right up where you left off. 
• See also:  How to download TurboTax Desktop software from TurboTax.com
• In addition, you may need to file Form 843 for Medicare and Social Security taxes to be refunded, also in Pub 525 just below the example.

If you take the credit, it will show up on Schedule 3.

[dmertz]

If the W-2 provided by the employer truly has box 1 less than box 11, you'll need to get a corrected W-2 from the employer such that the amount in box 1 is not reduced by the amount that you repaid.

[rsethi]

I am getting same error but due to different reason.

I received regular Payroll W2 from my employer. I also received a 2nd "Pension W2" from my employer, which is to account for the non-qualified pension plan I am enrolled in. 

Based on what I understand from my employer, this 2nd W2 is to account for some mandatory taxes which need to paid out for (I think Social security and Medicare tax) when I earn $ in non-qual plan. I think it is something like - some amount of $ are withdrawn from non-qual plan to pay for these taxes and to account for all of this, a second W2 is given. Now, whether all of this can be in put in one W2 or not I am not sure. 

When I enter this second W2 in TurboTax and go through entire taxes, Turbotax is is giving STRONG ERROR since Box#1 in this 2nd W2 has much less $ compared to Box11. For relative comparison, Box1 has $1, for Box#11 has $50. So TT is not liking it.

Has anyone seen this in the past? Can I just ignore TT warning proceed and file my taxes? One idea just came to me if - whether I combine $ from both the W2s and enter it just as 1 W2? But the issue might be that the EINs on both W2s are different even though I work for same company and both came from same company (guessing this might be more of different legal entities for same company type stuff).

@AmyC  @dmertz Any thoughts or inputs are welcome! ---- Thank you.

[cshaid]

Hello,

Based on my experience last year, you don't want to ignore the warning. Although you situation is slightly different than mine, after several rounds of communications with the IRS, I had to amend my return. I did not receive my 2023 refund until last month. Also, I didn't get any sound advice from this community after posting my issue. I did not need to ask for a corrected W-2. After talking with a CPA, the quick and easy solution was to ignore box 11 on the problematic W-2, which resulted in me having a negative income on form 1040 Line 1a. Box 11 just moves your income from one tax form to another. It does not change your income, just how your reporting it. So, when you ignore Box 11, you should end up with the same tax owed. This was the case for me and the IRS was satisfied with this solution. 

[rsethi]

@cshaid Thank you for quick insights.

"ignore box 11 on the problematic W-2" ==>  So you just did not enter box11 for that specific W2 and then everything was good since Box1 was > than zero value in Box11. Am I reading that correctly?

[dmertz]

The second W-2 seems proper to me to indicate amounts deferred in a prior year have now vested and become subject to Social Security and Medicare taxes.  In such a case the amount in box 1 is unrelated to the amount in box 11.  Make sure that when entering this W-2 into TurboTax that you indicate that the box 11 amount does not represent a distribution.

If TurboTax still complains. it's probably the case that the two Forms W-2 would normally be summed together and issued by the employer as a single Form W-2 and that's what TurboTax expects to see.

[rsethi]

@dmertz Thanks for the reply.

"you indicate that the box 11 amount does not represent a distribution." == I do not see this option in TT online Premier edition, May be I am not checking in the right place?

"the two Forms W-2 would normally be summed together and issued by the employer as a single Form W-2 and that's what TurboTax expects to see." ===> I agree 100% on this and will share this feedback with my company folks - for now, I have to deal with this and figure out best way to handle this.

Even though the 2 W2s have different EINs, and if above TT error continues, do you recommend or see any issues if I just add second W2 numbers in first one (respective boxes) and then just go ahead with 1 W2 in my tax return? Will IRS figure out that I added 2 W2s into 1 and ok with it? Any thoughts or suggestions on this idea? 

[rsethi]

@dmertz I think I spoke too soon - when I hit next button on TT I see this:

"We just need to check whether the $XXX in box 11 is money you contributed to your plan, or if it's money you took out of your plan.

Yes, I took this money out of my nonqualified or Section 457 plan.

No, this is money I contributed to my nonqualified or Section 457 plan."

Right now I have selected YES option - I think I should change that to NO - since I did not take out anything and it is just my company doing taxes on my behalf by taking out some $ from the non-qual plan.

Does selecting NO makes sense?

@cshaid @AmyC 

[dmertz]

Selecting No would be correct.  This was not a distribution (i.e., not money that you took out).

[rsethi]

@dmertz That did the trick (no errors now). Thank you very much for your guidance here. Much appreciated.