Discussion:1099-R Distribution Code 8- Taxable?
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Discussion Forum Index --> Advanced Tax Questions --> 1099-R Distribution Code 8- Taxable?
Discussion Forum Index --> Tax Questions --> 1099-R Distribution Code 8- Taxable?
| 9 October 2007 | |
| Wondering if I can get some feedback here. Client gives me a form 1099-R for the 2006 tax year. Box 7 shows a distribution code 8. Gross distribution shows $4100, as does the taxable amount.
Check stub that came with distribution shows $4000 as "Excess Contributions", and $100.00 of "Earnings". The stub goes on to explain that amount of contributions that can be credited to highly compensated employee's are limited, and that contribuitions in excess of these limits must be refunded, etc.. Further it states "Since these refunds are being made more than 2 1/2 months after your plan year-end, the excess contributions and earnings are taxable to you in 2006". I searched here for Code 8 issues, but only found postings regarding code P. I note that the tax program (Lacerte) is not showing any of the distribution as taxable. It is however showing the distribution as subject to the 10% penalty. It has been my experience Lacerte normally never gets it wrong, but I am tyring to understand the logic on this one. Is it because the taxpayer should have picked up the $4,000 in 2005? Code P seems more straight forward, but I am confused as to the proper reporting. Any help appreciated. | |
| 9 October 2007 | |
| According to the instructions for form 1099R, since the refunds were made after the 2 1/2 month period, they are taxable in the year distributed (2006). I am pretty sure that they are taxable income with no penalty. Not sure about your Lacerte problem since I don't use Lacerte. Good luck. | |
Death&Taxes (talk|edits) said: | 9 October 2007 |
| Look at his wages, it should show the income included on Line 7, but should not take a 10% penalty. | |
| 9 October 2007 | |
| They are also taxable in the year the excess contribution was made, i.e., they are taxable in 2005 and again in 2006 (that is, the $4000 only, not the $100 earnings.) | |
| 9 October 2007 | |
| Do not agree with the previous post. This is not an excess elective deferral but an excess contribution.
Take a look at §4979 - if the corrective distribution is made within the first 2½ months of year X, the distribution is included in the income for the year preceeeding X. If not made within the first 2½ months of year X, the income is included in year X. The instructions from the employer sound correct.
That is clearly stated in Reg. §1.401(k)-2(b)(2)(vi) I do not use Lacerte but perhaps you need to re-look at how you input the 1099 data???? | |
| 9 October 2007 | |
| You are probably correct. The double taxation will come into play for excess elective deferrals if not corrected prior to 4/15 of the following year. | |
| 10 October 2007 | |
| OK - Well, I feel pretty dumb. Yes Death&Taxes, the amount was in fact included on line 7 as "wages" by the program. I had not even looked to review that line. And NYEA, yes, in fact my staff member had over ridden the 10% early distribution penalty input field, that is why the program was calculating the 10% penalty. The staff member had thought it applied perhaps because the federal tax withheld equaled 10%, and the taxpayer had not reached age 59 1/2.
Thanks again to all the posters. Lacerte does not normally get it wrong, just my human error. | |
