I reported the entire excess deferral in 2018 under "other income."
Now in 2019 I am trying to report the $7 loss in the same place as a negative number.
TurboTax now treats this as a mistake, with the error:
"Wages, Salaries & Tips Worksheet: TP other earned inc shouldn't be less than zero".
Am I putting this in the wrong place?
It depends whether the excess distribution was corrected.
See this explanation from the IRS: Consequences to a participant who makes excess deferrals to a 401(k) plan:
Unless timely distributed, excess deferrals are
(1) included in a participant’s taxable income for the year contributed, and
(2) taxed a second time when the deferrals are ultimately distributed from the plan. See IRC Sections 402(g)(1) and 402(g)(2) and Reg. Section 1.402(g)-1(e)(2).
A participant who fails to receive a distribution of the excess deferrals does not receive basis in his pre-tax deferral account equal to the amount of excess deferrals. See IRC Section 402(g)(6).
The amount of the excess deferral will not be taxed twice if a corrective distribution is made.
I'm not sure that my initial question was understood.
What I am asking about is the *capital loss* on the excess deferral. In tax year 2018 I reported the full excess deferral amount, even though the distribution was a little smaller because of a capital loss. I believe that I was supposed to record the capital loss as negative income somewhere in tax year 2019.
I am in the same situation. I received a check in early April before filing my taxes for 2018. The letter that came with it said 'you should report the pre-tax amount of your excess deferrals on line 7 of your individual tax return (form 1040) for 2018, and you should report the alllocable loss as a bracketed amount on the "other income" line of your form 1040 for 2019.' I do not have to amend my 2018 return because I dealt with it when I filed in mid April.
For information see IRS Pub 525 page 10
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.”
Miscellionious Income ->
Other reportable Income ->
Any Other Taxable Income (yes) ->
Description (enter "Loss on Excess Deferral Distribution" and amount as a negative number).
Here is how to enter the excess salary deferral in TurboTax so that the amount will appear on Form 1040 Schedule 1 line 8
- Select 'Less Common Income'
- Then select 'Miscellaneous Income'
- Then select 'Other reportable income'
- The next screen will ask if you had 'Any Other Taxable Income?' Select Yes.
- The next screens will ask for a description and the amount.
- Enter the amount as a negative number, and the amount on line 8 of Schedule 1
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I tried doing as you suggested and TurboTax a) will not accept a negative number and b) Line 21 on the 1040 refers to a "refund".
Note that the topic of this thread is a *2018* tax return. It was line 21 in 2018, the forms and line numbers for 2019 are different. For 2019 that put it on the 1040 Schedule 1 line 8 under "Other income".