I just went through this exact situation with my Roth 401k excess contributions! The confusion is totally understandable - these distribution codes are incredibly confusing even for tax professionals. Here's what I learned after dealing with this mess: You're absolutely right that you don't need to amend your 2020 return. The BP-coded distribution represents the return of your already-taxed Roth contributions, so it shouldn't be taxable in 2021 either. The 8B-coded distribution is the earnings on those excess contributions, which IS taxable in 2021. The tricky part is getting TurboTax to handle this correctly. What worked for me was: 1. Enter both 1099-Rs as normal 2. For the BP form, look for an "override" or "adjust" option when TurboTax tries to add it to taxable income 3. Force the taxable amount to remain $0 for the BP distribution 4. Let TurboTax handle the 8B form normally since it's correctly treating that as taxable One thing that helped me understand this better was realizing that when your plan fails ADP testing (which sounds like what happened to you), they have to return contributions even from non-highly compensated employees to bring the plan back into compliance. It's not your fault - it's a plan-wide issue. Don't skip reporting the BP form entirely - you need to report it but ensure it's not taxed twice. The IRS expects to see both 1099-Rs on your return even if one isn't taxable.

I'm dealing with a very similar situation right now and this thread has been incredibly helpful! I received BP and 8B coded 1099-Rs after my company's 401k plan failed compliance testing, and like you, I was nowhere near the contribution limits. One thing I wanted to add that hasn't been mentioned yet - make sure you keep detailed records of this whole situation. I created a file with copies of both 1099-Rs, the explanatory letter from my plan administrator, and screenshots of how I entered everything in TurboTax (including the override for the BP distribution). The reason I'm being so careful about documentation is that a colleague of mine had a similar excess contribution return a few years ago, and the IRS sent her a notice two years later questioning why she didn't report the full amount as taxable income. Even though she was right, it took months to resolve because she didn't have good records of how she handled it originally. Also, if you're planning to contribute to your 401k again this year, you might want to check with HR about whether the plan is likely to pass testing this time around. Some plans consistently fail ADP testing year after year, which means this could happen again. It's frustrating to have your retirement savings interrupted by plan compliance issues that are completely out of your control. Thanks to everyone who shared their experiences and solutions - this is exactly the kind of real-world advice you can't get from the IRS instructions!

Just want to add one more thing that really helped me when I was dealing with my HSA distribution last year - make sure you keep detailed records of everything related to this distribution, even if it wasn't for medical expenses. I learned this the hard way when I got a letter from the IRS about 8 months after filing. They wanted documentation showing that I properly reported the non-qualified distribution and paid the appropriate penalties. Having copies of my 1099-SA, screenshots of the FreeTaxUSA screens where I entered the information, and records of any penalty exceptions I claimed made responding to their inquiry much smoother. Also, if you're like me and this HSA withdrawal put you in a tough financial spot, consider setting up a payment plan with the IRS if you can't pay the full tax amount by the filing deadline. FreeTaxUSA will calculate what you owe, but you can arrange payments directly with the IRS if needed. Just don't ignore it - the penalties and interest keep adding up if you don't address it.

I went through this exact situation last year and wanted to share a few additional tips that helped me navigate the process smoothly in FreeTaxUSA. First, when you're entering your 1099-SA information, double-check that you're entering the gross distribution amount from Box 1 correctly - this is the total amount you withdrew, not what you might have received after any withholdings. Second, if you had multiple HSA distributions throughout the year (like I did), you'll need to combine all the amounts from your various 1099-SA forms. FreeTaxUSA will ask for the total distribution amount and total qualified medical expenses across all withdrawals. One thing that caught me off guard was that even though my distribution was for emergency expenses, I could still offset part of it with qualified medical expenses I had paid out of pocket during the year. So if you paid for any medical expenses with regular funds instead of your HSA, you can reduce the taxable portion of your non-qualified distribution. Keep receipts for prescriptions, doctor visits, dental work, etc. that you paid for separately. The software will walk you through this calculation, but having all your medical receipts organized beforehand really speeds up the process. It ended up saving me about $300 in taxes by properly accounting for qualified expenses I had forgotten about.

Has anyone tried just asking for a copy of their quarterly 941 form? That's what employers use to report wages and taxes to the IRS each quarter. My previous restaurant manager showed me mine when I had a similar issue. Might be worth asking for that specifically.

One thing that's helped me is creating a simple daily tip log using a notes app on my phone. I record cash tips, credit card tips, and any tip-outs to other staff every single shift. Takes maybe 30 seconds but gives you solid documentation. Also, if your restaurant uses a POS system like Square or Toast, sometimes you can ask to see your individual sales reports that show the credit card tips tied to your transactions. This can help you verify if they're calculating your reported income correctly. Some managers are more willing to show you this data than full payroll reports since it's less sensitive information. The key is catching discrepancies NOW rather than waiting until January when your W-2 arrives. Fixing errors after the fact is a nightmare that can drag on for months.

Something else to watch out for - if you're an international student on an F-1 or J-1 visa, the tax rules for scholarships are TOTALLY different! Most tax software doesn't handle this correctly either. International students often need to file form 1040NR and may be exempt from taxes on scholarships under tax treaties.

This is such an important PSA - thank you for sharing! I work as a tax preparer and see this mistake constantly. What makes it even more confusing is that the IRS gets a copy of your 1098-T, so they KNOW exactly how much scholarship money you received. When your return doesn't include the taxable portion, it's basically guaranteed to trigger a notice. One thing I'd add: keep detailed records of ALL your education expenses, not just tuition. Required textbooks, lab fees, course materials - these can all be used to reduce the taxable portion of your scholarships. I've seen students save hundreds in taxes just by properly documenting these expenses. Also, if you're a graduate student with a teaching or research assistantship, those stipends are almost always taxable income and should be reported on a W-2 or 1099. If your school isn't withholding taxes on stipends, you might need to make quarterly estimated payments to avoid owing a big chunk at tax time. The whole system is way too complicated for students who are already stressed about finances!

Quick tip for anyone doing nanny taxes - get payroll software! I wasted SO much time trying to do this manually before I finally got NannyPay. It costs like $150 for the year and calculates all the withholdings automatically, tells you exactly when and how much to pay for quarterly taxes, and generates all the forms including W-2s at year end.

Yes, NannyPay sends email and text reminders for all tax payment deadlines! It's actually one of my favorite features because I used to miss quarterly deadlines all the time. The system tracks federal EFTPS payments, state withholding deposits, and unemployment contributions separately, so you get specific reminders for each with the exact amounts due. It also integrates directly with EFTPS for federal payments - you can initiate the payment right from the software interface. For state payments, it generates a summary with all the details you need to log into your state portal and make the payment. The reminders come about a week before each deadline, which gives you plenty of time to review everything before submitting. The peace of mind alone is worth the cost. Before using it, I was constantly worried I was calculating something wrong or missing a payment date. Now everything runs on autopilot and I just follow the system's guidance.