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in 2015, I worked half the year at CompanyA and switched jobs to CompanyB sometime in May.

During the 401K sign-up, an error occurred and my full first paycheck (and sign-on bonus) ended up going towards my 401K which caused my 401K account to go over the yearly limit by about $8200.

Fidelity then issued a check to me (taking out some federal and state taxes) for around $7445.

When I received my W2 from CompanyB, box 12b-D did not account for the money that was removed from the 401k account. It lists $17347, if you add the contributions to CompanyA, then my W2s still look I contributed $26200 to my 401k even though the money was removed from the 401k account.

Since a 1099-R was issued by Fidelity, that counts as income and the amount over the limit is also being taxed.

My tax accountant says she is supposed to enter the values as they are on the W2 and CompanyB said they will not issue a new W2 because they were not involved in the refund of the money.

We decided that we will enter a value different from 12b-d, subtract the money that was refunded to me because it's already on the 1099. She says I'll probably get audited and will have to explain it then.

Is there an alternative to avoid paying taxes twice on the 401k overages? If not, is there a better way to do this to minimize the risk of an audit?

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Someone messed up here.

My tax accountant says she is supposed to enter the values as they are on the W2 and CompanyB said they will not issue a new W2 because they were not involved in the refund of the money.

Correct.

We decided that we will enter a value different from 12b-d, subtract the money that was refunded to me because it's already on the 1099.

Incorrect.

Is there an alternative to avoid paying taxes twice on the 401k overages? If not, is there a better way to do this to minimize the risk of an audit?

You should enter the amounts in W2 as they are. Otherwise things won't tie at the IRS and they will come back asking questions.

The amount in box 12-D was deducted from your wages pre-tax, so you didn't pay tax on it. The distribution is taxable, and if it was made before the tax day next year - only taxable once. So if you withdrew the same year of the contribution, as it sounds like you did, you will only pay tax on it once because the amounts were not included in your salary.

If the 1099-R is marked with the correct code, the IRS will be able to match the excess contribution (box 12-D) and the removal of the excess contribution (1099-R with the code) and it will all tie, no-one will audit you.


The accountant is probably clueless as to how her software works. By default, the accounting software will add the excess contribution on W2 box 12-D back into wages, and it will be added to taxable income on your tax return.

However, when you type in the 1099 with the proper code, this should be reversed by the software, and if it is not - should be manually overridden.

This should be done at the adjustment entry, not the W2 entry screen, since a copy of the W2 will be transmitted with your tax return and should match the actual W2 transmitted by your employer.

If she doesn't know what she's doing, find someone who does.

  • Thanks, I'm copy pasting this to my accountant. I guess if they can't do what you suggested, I'll go somewhere else. I'll accept the answer when I can prove that this solves my problem. – Juan Mendes Apr 6 '16 at 18:22
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    Good to know my initial instinct was correct! This sort of thing is not uncommon, particularly with higher income earners switching jobs mid-year; it's definitely something that a) the IRS has rules to handle and b) a competent accountant should know how to manage. – Joe Apr 6 '16 at 19:02

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