Incorrect 1099-R?

[Guest crazyadmin]

Hi All,

I received a 2003 Form 1099-R from a former employer of mine reporting federal withholding on a loan I had taken back in 2000. Here's the history:

I took a loan and hardship from the plan while I was still employed (of course), and I left the company shortly thereafter. They issued me a 1099-R for 2000 reporting the hardship and loan (with distribution code 1L) without federal withholding (because none was withheld at my request). When I took the loan and hardship I left a very small balance of about $200.00 remaining in my account. I never received a statement, but I was able to access my account online. In 2003, I noticed my very small balance was gone. I contacted an employee at the company and they notified me that the balance was submitted to the IRS as withholding on the loan I had taken in 2000. I thought that was fine I will just get that money back when I file my taxes, but I just received the 1099-R for 2003 with the gross distribution and taxable amount of $1,421.57 (the amount of the loan I had taken) and federal income tax withheld of $175.14.

Now, I already paid the penalty and taxes on the loan (and hardship) back in 2000 and this 2003 1099-R I got looks to me like I'm going to pay the penalty on the loan again.

I guess my first question is: can they just take my money and deposit as withholding on a loan I took 3 years ago (I can understand that they would deposit it as withholding because they couldn't locate me since I've moved 2 times since I've worked there)? And my second question is: shouldn't the gross distribution and taxable amount be zero, since there was no distribution taken in 2003? If so, do I just need to notifiy my former employer in writing and ask them to correct the 1099-R?

I'm sorry this is so wordy, but I felt you needed the entire story to get the full picture. Any help would be very appreciated.

[Guest JimD]

The loan reported in 2000 was reported as a "deemed" distribution since a code L was used so you must not have terminated in 2000. Assuming you were in a 401(k) plan the plan could not report the loan as a distribution to you because you had not terminated. Regardless the loan should not be reported again as taxable income in 2003 on a 1099R. Looks like the $175.14 is the taxable amount, the gross amount and the amount withheld for 2003. Send them a copy of the 2000 1099R and advise them they previously reported the loan and to issue you an amended 1099 for 2003 showing only the $175.14. My best guess.