Excess 401k contribution
Taxpayer has not yet filed her 2021 tax return.
Taxpayer left job and took another job in 2021. She overcontributed to the new employer 401k having failed to realize how much she had contributed to her previous employer for 2021.
She realized it currently and upon contacting her current employer they told her they would refund the excess (plus accrued interest) in March 2022 – They said they will not issue an amended W-2 – but she will receive a 1099 form from ADP for the excess. I presume that 1099 will be for 2022.
Can she just add the excess deferral amount to her W-2 wages in 2021 (as if she received a corrected W-2)?
Will she also have to pay tax on the 1099 amount which presumably includes the excess deferral amount on her 2022 taxes?
Is her current employer incorrect for not amending her W-2 and will this cause her to pay income tax twice (once in 2021 and again in 2022)?
Thanks
Howard
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-07 22:26
A revised W-2 should not be issued. The 2021 tax program should automatically add the excess of the 401k contribution limit to her wages for 2021. These deferrals are reported in Box 12d of each W-2, so proper entry of the W-2 forms will result in the proper amount of taxable wages. Then for 2022 there will be two 1099R forms issued, one for the return of the excess (and this one can be ignored), and another for any earnings generated on the excess amount. The earnings will be taxable (but no penalty), on the 2022 return, the year in which those earnings are distributed. There is no double taxation as long as the excess with any earnings is distributed by 4/18.
Permalink Submitted by Howard Hook on Mon, 2022-03-07 22:35
Thank you as alwaysHoward