Excess contribution 401(k)

[Gretel]

I find various topics on excess contributions covered in TTB but not this specific one.

Employer overfunded 401(k) for one employee. So box D of W2 shows too much $$. Financial institution noticed right away and money was sent back to employee, never invested. So we are good on withdrawal of excess contribution.

But, neither employee nor employer paid appropriate amount for SS and Medicare. Employer is incapable of doing anything. Do I have any obligation to pay SS and Medicare on 1040. Maybe, even employer's share? Like form 4137?

Any thoughts are appreciated.

[jerome]

Elective deferrals do not reduce FICA wages. If there was an excess deferral, it should have no affect on the correct amount of FICA tax that was withheld. 401(k) elective deferrals only reduce the amount in box 1 of the W-2.

[Gretel]

Oh boy, do I feel stupid. Thank you so much.

[Gretel]

One more questions please

Am I right, that the distribution for the excess is taxable in year received? Which would be 2007 in my case.

[jerome]

The tax book page 16-16 lists the 2006 Form 1099-R codes for box 7.

Code 8 is for the excess contributions plus earnings taxable in 2006.

Code P is for the excess contributions plus earnings taxable in 2005.

For a 2007 Form 1099-R, code 8 will be for 2007 and code P will be for 2006.

You will have to wait and see what code the payer puts on the 1099R.

[Gretel]

Thanks, I knew about the codes. Who in the world determines which year the distribution will count as income. Is there any logic?

I would think since the W-2 company paid retirement funds (including excess contribution) in January 07 (for Dec. 06 wages) and investment company paid back in 2007 plus interest it would be considered 2007 income. I do not want to get a 1099R in Jan. 08 for this deal and then find out they consider it to be 2006 income.

But, I guess, I have no control over this. By the way, investment company said they will not issue any 1099, but I don't believe that.

[BP.]

Who in the world determines which year the distribution will count as income. Is there any logic?

I don't know about logic, but in the instructions for Form 1099-R, on pp. R10 & R11 there are charts that specify the conditions determining which of the codes to use, which then determines what year the distribution counts as income.