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How to handle 1099-R with distribution code P (taxes paid on 2006 return)

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

Reply to
Bhoot Nath
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If the distribution were taxable on your 2007 return, the software should carry the taxable amount to line 7 (wages), not line 16. In fact, that's where it should have been reported on your 2006 return. Are you sure you have the 1099-R codes entered correctly in your software?

Since the 1099-R shows distribution code P, IRS will expect to see the income on your 2006 return, not 2007. Just delete the 1099-R from your 2007 software.

Condor

Reply to
Condor

Condor, Yes, in the 2006 return, it was added in line 7 and, all applicable taxes were paid.

The 1099R that I have received has "2007" in big bold font on top, so that's why I thought it should be reported somewhere on this year's taxes.

Yes, I double checked. I have entered code as "P" in the software, same as on the form.

========================================= MODERATOR'S COMMENT: Please delete unnecessary text from the prior message when responding.

Reply to
Bhoot Nath

This is a problem with TaxAct. With other tax programs, when you entered a 2007 1099-R with distribution code P, the amount does not get added to line 16a ot 16b as it was for a prior year. But with TaxAct, it does. I think the solution is to not enter the 1099-R into TaxAct. I guess you did enter this 6k into your 2006 return or 2006 amended return, on line 7 (wages)? Any earnings from that 6k would also be refunded to you in 2007, and that would appear on your 2007 return as a taxable IRA distribution but there would be no penalty. How many 1099-R's did you receive?

Reply to
removeps-groups

That's what he said.

It has nothing to do with IRAs, and if the earnings on the excess were distributed in time, they were also 2006 income on line 7 of the 1040. See Publication 525.

As everyone, including you, has advised OP, you report nothing regarding a

2007 1099-R with code P on your 2007 return. If the total was reported on line 7 of your 2006 return there's nothing else to do. Otherwise, the appropriate action is an amended 2006 return.
Reply to
Phil Marti

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