I have a long time client who is a NFL coach. He switched teams in 2018 and contributed $18,500 to his 401k at both employers. I caught this over two weeks ago and got the ball rolling w/ the HR department with the lesser match to correct it. My client just got this response from HR:
"You will not receive a new W-2. The letter you receive will explain it all and have what you need to complete your taxes. The excess deferral is taxable and must be reported on your 2018 income tax return. You will receive a 2019 Form 1099-R from XXXX Bank delivered by 1/31/2020. The investment loss is a 2019 taxable event on your 2019 tax return."
I realize the over payment will be refunded in 2019 and it will need to be taxed on their 2018 tax return. Of course I have not e-filed their returns. However, is there anyway to avoid preparing an amended return for 2018? In 2019 the 1099-R will have "P" in box 7 "excess contributions plus earnings taxable in 2018". I realize it is past the deadline for 1099s, but couldn't they issue a 2018 1099-R without withholdings if we request it? They would have a penalty for late filing of the 1099, but this would avoid amended returns. My client would still have refunds if an $18,500 2018 1099 is issued w/o withholdings.
Although clients should be aware of their year to date contributions when they switch jobs and be sure to not over contribute, I think the HR departments with high paying employees who often job hop would be on top of this and ask for their year to date contributions when they fill out their W4s. It seems like there would be a better way to "fix" this than filing an amended return when it is caught before the tax deadline and before the returns are e-filed.
Coaches get a W2 for every state they play in. Thus, I have seven state returns and most likely I will only have to amend the Federal and one state. However, some of the other state returns may be effected by an increase in Federal AGI.
"You will not receive a new W-2. The letter you receive will explain it all and have what you need to complete your taxes. The excess deferral is taxable and must be reported on your 2018 income tax return. You will receive a 2019 Form 1099-R from XXXX Bank delivered by 1/31/2020. The investment loss is a 2019 taxable event on your 2019 tax return."
I realize the over payment will be refunded in 2019 and it will need to be taxed on their 2018 tax return. Of course I have not e-filed their returns. However, is there anyway to avoid preparing an amended return for 2018? In 2019 the 1099-R will have "P" in box 7 "excess contributions plus earnings taxable in 2018". I realize it is past the deadline for 1099s, but couldn't they issue a 2018 1099-R without withholdings if we request it? They would have a penalty for late filing of the 1099, but this would avoid amended returns. My client would still have refunds if an $18,500 2018 1099 is issued w/o withholdings.
Although clients should be aware of their year to date contributions when they switch jobs and be sure to not over contribute, I think the HR departments with high paying employees who often job hop would be on top of this and ask for their year to date contributions when they fill out their W4s. It seems like there would be a better way to "fix" this than filing an amended return when it is caught before the tax deadline and before the returns are e-filed.
Coaches get a W2 for every state they play in. Thus, I have seven state returns and most likely I will only have to amend the Federal and one state. However, some of the other state returns may be effected by an increase in Federal AGI.
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