Lisa 4700

And the 2020 W2 stands as is?

Hello All- 90% of these regulations are over my head and I am looking for some 401(k) for dummies advice. I have same scenario- a client allowed 2 employees to defer to the 2020 plan year of their 401(k) who had not met the 6 month eligibility test. Fidelity caught this recently and refunded the employee deferrals to the employer. We are their payroll company. They are asking us how to give the money back to the employees and what corrections need to be made to their 2020 W2s. Should they just give the employees the money back and correct the 2020 w2s to increase the box 1 wages, and remove their box 12 code D deferral amounts? It seems logic, since they were not really participants in the plan and those would have been box 1 wages had they not been sent to the 401(k) by mistake, but in all my reading, I have not seen anything about correcting a W2. I've seen things suggesting it be reported on a 1099-R, but then what about the W2 for 2020. It is reported that they were participating in a plan when they really were not. Does it just stand as is? That doesn't seem right either. Fidelity is giving them no guidance on this, and I don't really want to either, but would like to point them in the right direction. Thanks for any assistance!