Reporting 402(g) refund on Tax Return

[Guest lgm]

We have issued a 402(g) refund for a participant. I advised him that in early January 2009 he would receive a 2008 1099-9R with a code P for the excess amount. I told him that means it is taxable in 2007. He wants to amend his return now, and asked how he can do that without the 1099. I am not sure how he would do that other than add it to the "other income" line on his amendmended return (which is how he will report the corresponding loss for 2008 on the 2008 return since there is no 1099 for the loss). Does anyone have any idea how a participant reports the excess income due to the refund without the 1099?

Thank you!

[J Simmons]

I thought it would be entered on Line 7 (wages) rather than Line 21 (other income). Other than that, it all sounds correct to me.

[dmwe]

I've had a few inquiries this year on that as well. I think as people are using tax software it's expecting someone to enter data directly off of a 1099R they got in the mail and then will drop those figures into the 1040 where it wants the income to fall.

I think some people have entered dummy 1099R data with a code saying "Current Year Refund" as if they received a 2007 1099R so that the software would pull it into the current return.

[Kimberly S]

From what I know of the tax preparation software, I believe that would work so long as they file on paper. If they file electronically the IRS will not find the 1099-R filed by the plan to match them up.

[Guest mjb]

From what I know of the tax preparation software, I believe that would work so long as they file on paper. If they file electronically the IRS will not find the 1099-R filed by the plan to match them up.

P18 col 3 of the 1040 instructions states that excess salary deferrals reported on the W-2 are reported on line 7. Presumably this refers to excess contributions which result from participating in more than 1 plan. There is no mention of 1099 returns. Why are excess deferrals reported on a 1099 since they are W-2 wages and not a distribution?

[J Simmons]

Page 4, second column of page 4, 2007 Instructions for Forms 1099-R and 5498 provides:

Corrective Distributions

You must report on Form 1099-R corrective distributions of excess deferrals, excess contributions and excess aggregate contributions under section 401(a) plans, section 401(k) cash or deferred arrangements, section 403(a) annuity plans, section 403(b) salary reduction agreements, and salary reduction simplified employee pensions (SARSEPs) under section 408(k)(6). Excess contributions that are recharacterized under a section 401(k) plan are treated as distributed. Corrective distributions of an excess plus earnings are reportable on Form 1099-R for the year of the distribution regardless of when the distribution is taxable to the participant. Enter Code 8, P, or in some cases D, in box 7 (with Code B if applicable) to designate the distribution and the year it is taxable.

TIP: The total amount of the elective deferral is reported in box 12 of Form W-2. See the Instructions for Forms W-2 and W-3 for more information.

If the excess and the earnings are taxable in 2 different years, you must issue two Forms 1099-R to designate the year each is taxable. You must advise the plan participant at the time of the distribution of the year(s) in which the distribution is taxable and that it may be necessary to file an amended return for a prior tax year.

Are excess deferrals paid out before the W-2 is prepared for the year of the excess then included on the W-2, but if not paid out until after the W-2 is issued then reported on a 1099-R for the year of the pay out?

[Guest mjb]

I think the 1040 instructions are intended for those employees who contribute to multiple plans in a tax year (2007) which exceed the elective deferral limit for that tax year (15,500) where no 1099-R will be issued by a plan for that tax year. The 1099-R is intended for distributions of all other excess deferrals and earnings in the following year.