Refund of Elective Deferrals and Earnings After Hardship Distribution

[12AX7]

Elective deferrals were made in the six month period following a hardship distribution. Where elective deferrals need to be returned to the participant by way of refund to the plan sponsor to go through payroll, how are the earnings of the disbursement reported and taxed to the participant? Thanks.

[MWeddell]

It is a distribution from the trust, so it does not go through payroll at all.

I know, I've seen it done through negative contributions processed by payroll, but there is no legal justification for doing the correction that way.