In 2007 I was deemed an HCE; as a result, about 6K of my 401K contribution for 2006 was categorized as excess and retfunded (with a small earnings). This was included in my 2006 tax calculations, and I paid the extra federal and state taxes.
Now, I have received a 1099R for the tax year 2007, with distribution code "P" -- which says "Excess contributions plus earnings / excess deferral taxable in 2006". Both line 1 and 2a are listed as $6K. When enter this in tax software, the amount automatically rolls to Form
1040 line 16a and 16b.
But this is not right! I already paid taxes on this in 2006, so I should not have to pay taxes again on the 2007 return.
Since I received the 1099R, I must report it. I think it should go in line 16a, but should be excluded from line 16b. But TaxACT is not doing it this way... I have an optiobn to override, but I want to understand it first.
How do I report the amount from 1099R (so I don't get nastygram from IRS), but still avoid double taxation, since I already paid taxes in
2006? The code P's meaning is clear, but how to actually make that happen?
Bhoot Nath