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What if I have a 401(k) excess deferral?

SOLVEDby TurboTax138Updated March 22, 2022

If you received a 2021 excess deferral distribution in 2022, you will receive a 2022 Form 1099-R   with a distribution Code P in box 7; however, it must be included on your 2021 tax return. You have two options to do that:

  1. Wait until next year when you receive the 2022 Form 1099-R and amend your 2021 Tax Return. Or,
  2. Report it now on your 2021 return and ignore the 2022 1099-R when it comes next year. 
    • Important: If your 2022 Form 1099-R has an amount in box 4, Federal tax withholding and/or box 14 State withholding, then you must enter it on your 2022 tax return. The 2022 Code P won’t affect your return, but the withholdings will be applied to 2022.

Once you start the amendment process, follow these steps to add your excess 401(K) contribution to your wages:

  1. Sign in to TurboTax and open or continue your return.
  2. Select the Federal Taxes tab.
  3. Go to the Wages & Income tab.
  4. Select I'll choose what I work on.
  5. Go to Less Common Income and select Show More.
  6. Go to Miscellaneous Income and then select Start, Update or Revisit.
  7. Select Other income not already reported on a Form W-2 or Form 1099 and then select Start.
  8. Answer Yes to the question Did you receive any other wages?
  9. Select Continue through the questions until you get to the screen, Any Other Earned Income.
  10. Answer Yes to Did you earn any other wages?.
  11. Indicate Other as the Source of Other Earned Income and select Continue.
  12. For the description, enter 2021 Excess 401(K) Deferrals and select Done.

If you haven’t filed your 2021 return yet, to report a 2021 excess 401(k) deferral that was distributed in 2022:

  1. Sign in to TurboTax and open or continue your return.
  2. Select Federal from the left menu.
  3. Select Other Tax Situations. (Note: In some situations, you may need to go to Less Common Income and select Show More.
  4. Go to Miscellaneous Income, 1099-A, 1099-C and select Start.
  5. Select Other income not already reported on a Form W-2 or Form 1099 and then Start.
  6. On the page Did you receive any other wages?, answer Yes and select Continue.
  7. Continue until you get to the Any other earned income screen. Answer Yes and select Continue.
  8. On the page Enter Source of Other Earned income, select Other and Continue.
  9. On the page Any Other Earned Income, enter 2021 Excess 401(k) Deferrals for the description, enter the amount, and select Done.

For Tax Year 2022:

Your 2022 Form 1099-R form will be issued reporting the excess 2021 401(k) deferral you received as a distribution in 2022.

  • You can ignore a Form 1099-R with code P in box 7 if you reported the excess as described above in 2021
  • But, the earnings on Form 1099-R with code 8 in box 7 should be reported in 2022 

Please be aware: If you do not take out the excess amount by the due date, then you're 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.

If you already filed your return you already filed:

E-filed returns can be changed if they've been accepted. If your e-file is still pending, you won't be able to make changes until the IRS either accepts or rejects it.

Paper-filed returns may be amended once they've been mailed.

Don't know your e-file status? Here's how to look it up. Select your tax year for amending instructions:

2021

2020

2019

2018

Keep in mind: You have 3 years from the date you filed your return or 2 years after you paid the tax due (whichever is later) to file an amendment.

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