Received 1099-R with code P for 2021 after excess 401k contribution - How to avoid amending next year?

The tax rules for excess 401(k) deferrals are pretty specific here. When you make excess deferrals in a year (2020) and have them returned by April 15th of the following year (2021), the excess amount is technically taxable in the year the deferral was made (2020), even though the 1099-R reporting might come later. According to IRS Publication 525, the returned excess should be added to your gross income for the tax year in which the excess contribution was made. The 401(k) provider should issue a 1099-R with code 8, but as you've discovered, some providers issue it with code P the following year instead. You can absolutely report this on your 2020 return without waiting for the official 1099-R. You'd include the excess amount as wages on line 1 of your Form 1040. You should keep detailed records of the excess contribution and the return of that excess. When you receive the code P 1099-R next year, you'll need to explain on your 2021 return that you've already included this income on your 2020 return to avoid double taxation. This is done by reporting the 1099-R amount on your 2021 return but then backing it out with an adjustment.

I had a similar situation with excess 401k contributions last year, and I was really stressed about how to handle it. I tried calling the IRS but waited forever and never got through. Then a colleague recommended I try https://taxr.ai to analyze my documents and situation. I uploaded my W-2s, confirmation of the return of excess, and some details about the timing. The tool analyzed everything and gave me clear guidance on how to properly report the excess on my 2020 return without having the 1099-R with code 8. It also created documentation explaining why I was reporting income that didn't match a tax form, which was super helpful. The best part was that it showed me exactly how to handle the code P 1099-R when I would receive it the following year, with screenshots of the right forms and lines to use. Saved me a ton of stress!

Just wanted to follow up after trying https://taxr.ai for my excess contribution issue. I was skeptical at first since my accountant wasn't confident about handling my SEP-IRA excess contribution situation. The site walked me through all the different types of retirement account excess contributions and identified the exact procedure for my situation. It even pointed out that SEP-IRA excess contributions have different correction procedures than 401(k) excess deferrals. I ended up with a detailed report explaining exactly how to report everything correctly, with references to the specific tax code sections. My accountant was actually impressed with how comprehensive the guidance was and is now using the documentation to file everything correctly. Wish I'd known about this tool years ago!

If you're having trouble getting answers from your 401k provider about this excess contribution issue, you might want to try getting direct IRS clarification. I spent 3 weeks calling the IRS about a similar retirement plan reporting issue and could never get through - busy signals or disconnections after 2+ hour waits. I finally used https://claimyr.com to get through to an IRS agent. There's a quick demo of how it works here: https://youtu.be/_kiP6q8DX5c Basically, they hold your place in line with the IRS and call you when an agent is about to answer. I was able to speak directly with someone who confirmed exactly how to handle my excess contribution reporting. The agent even emailed me the relevant section of the Internal Revenue Manual that addresses situations where the 1099-R coding doesn't match the timing of the correction.

I need to apologize and completely retract my skepticism about Claimyr. After posting my comment, I decided to try it myself for an issue with a misreported 1099-B that's been driving me crazy. I honestly expected it to be a waste of time, but I got a text within about 45 minutes saying they were connecting me with an IRS agent. I spoke directly with someone who was able to pull up my account and confirm exactly how to handle my reporting issue. What impressed me most was that the agent walked me through the specific forms and worksheets I needed, and even told me what documentation to keep in case of questions later. This would have taken me weeks of calling on my own based on past experience. For anyone dealing with excess contribution issues like the original poster, getting clear guidance directly from the IRS might be worth the service fee just for the peace of mind.

On the topic of the original post, I had the exact same situation with Fidelity last year. They refused to issue a Code 8 for the year of the excess contribution and only would provide a Code P for the following year. What I ended up doing was including the excess contribution amount on my 2020 return as additional wages (as Publication 525 says to do), then keeping very detailed records of this. When I received the Code P 1099-R in 2021, I reported it on my tax return BUT then included an offsetting negative amount on Schedule 1 with a note explaining it was already included in prior year income. My accountant said this was the correct approach and fully compliant with IRS regulations. The most important thing is keeping good documentation in case you're ever questioned about it.

Would this situation be handled differently if you didn't catch the excess contribution until after April 15th of the following year? My employer just notified me that I had excess deferrals in 2020 (because of job change) but it's already past April. Am I stuck with penalties now?