It's finally here. No longer do you have to take Mr. Sherman by the hand and step into the Way-Back Machine when figuring out just WHEN to report those dreaded ADP refunds on your taxes. (The ADP test is the non-discrimination test on Employee Deferrals, which must be performed annually on all non-Safe Harbor 401(k) Plans.)
Starting with plan years that began on or after January 1, 2008, if refunds are required due to a failed ADP test, those refunds are now taxable in the year DISTRIBUTED. For example, if you receive an ADP Refund in February 2009, due to failed non-discrimination testing for the plan year-ended December 31, 2008, the refund will be taxable to you in 2009. You will receive a Form 1099 in January 2010 reflecting the refunded amount, which will then be reported on your personal tax return for the year.
In years past, ADP refunds made on/before March 15 (for calendar year plans), were reported on your PRIOR YEAR'S tax return. So refunds received in February 2008 were to be reported on your 2007 tax return...even though the 1099 would not be received until 2009!
And to make matters worse, if the refund were made timely (within 2 1/2 months of the close of the plan year) for off-calendar year plans, you would have to go back and amend your tax filing for the year in which the plan year STARTED! No WONDER people were always confused about the reporting requirements of the refunds.
But all is well with the universe now...so put away your time machine, and know that life just got simpler. Well, this piece of it at least.
3 comments:
What if you received an ADP refund on March 18, 2008, for the 2007 401k plan year? Can you claim that as 2008 income since the payer missed the 2.5 month deadline? I received the 2008 1099-R with a P in box 7 about March 16 2009. I want to include this in my 2008 income rather than the hassel of having to go back and fill an amended return for 2007. The same thing happened last year and to add insult to injury, I had to pay a substantial penalty to both the state and Feds.
What is the law here?
Unfortunately, in most circumstances, the timing has to do when the check was issued. If the check was issued by the March 15th deadline, the 1099 you received is accurate, even though you did not receive the check until the 18th. It can't hurt to go back to the provider to have them double check on when the check was issued. Wish I had better news for you!
The silver lining is that going forward you won't have that timing issue any more...
this is very good for you, ybg :)
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