401K $$ Never reached the plan

[TaxBird]

I have a client whose 401K plan ended in June '06. For some reason, deductions continued to be taken from the employees checks and was not forwarded to the prior plan provider until the end of Aug '06. Sept '06 the employer gets the $$ back. The $$ was deposited in the employers account until they can figure out what to do with it.

I know the $$ has to go back to the contributing employees however, I am unclear as to which is the best method to accomplish this.

Do I adjust the W-2s or is a 1099-R issued by the employer? I hesitate on the 1099-R because the contribution never made the plan. However, there would be additional pr taxes due on the 401K $$ that was never contributed which means a 941c.

I would like to bounce this off you guys before I proceed. Any feedback/advice would be greatly appreciated.

[BOB W]

What to Do?

I would issue a currently dated pay check that effects Box 1 of the W-2 and box 12> as well as Fed & St W/H, net going to the employee. Box 12 would be a credit for the amount going into Box 1.

Since the year end has not happened yet there would not be a 1099R on this issue.

[TaxBird]

I would issue a currently dated pay check that effects Box 1 of the W-2 and box 12> as well as Fed & St W/H, net going to the employee. Box 12 would be a credit for the amount going into Box 1.

Since the year end has not happened yet there would not be a 1099R on this issue.

Thanks Bob!

[BOB W]

This is.........

.......... another reason why I like doing live payroll "in-house"