Form W-2 Errors Showing Excess Deferrals
In its 401(k) Excess Deferral Project, the Employee Plans Compliance Unit found errors in elective deferrals reported in Box 12 of Form W-2, Wage and Tax Statement. The project sampled employers who filed Forms W-2 that showed some employees had elective deferrals in excess of the annual limit.
Project results
Responses showed that 75% of the employers in the sample needed to correct their Forms W-2.
Form W-2, Box 12
Employers must report 401(k) elective deferrals in Box 12 of the Form W-2, using the code “D.”
Employer errors
Employers incorrectly reported as 401(k) elective deferrals in Box 12:
- elective deferrals made to 403(b) or 457 plans, or
- other non-qualified amounts.
Employers also made errors in reporting Social Security wages and deferred compensation, and used incorrect codes. Form W-2 filers can avoid some of these errors by following the Form W-2 instructions. To correct their previously filed Forms W-2, employers filed over 26,000 Forms W-2C, Corrected Wage and Tax Statement. Because of our compliance contact, most of these employers became aware of software and data transmission problems when moving files back and forth with their third party administrator or payroll vendor and took action to fix those problems for future W-2 filings.
Fixing excess deferral errors
When an employee's elective deferrals exceed the annual limit during a calendar year, the employee must include the excess amount in income for the year in which it was contributed to the plan. The employee is also taxed on the earnings on the excess elective deferrals in the year the plan distributes them. If the plan doesn’t distribute the excess deferral by April 15 of following year, the excess is taxable in both the year deferred and the year distributed.
Some employers in the sample had already recognized employees who had made excess elective deferrals to their plan. They corrected this by returning the excess deferrals and issuing a
Additional resources
- Get help on how to fix excess deferrals and prevent future mistakes in the IRS 401(k) Plan Fix-It Guide.
- Learn about correcting other plan errors using the Employee Plans Compliance Resolution System.
- Read about other Form W-2 errors found in this project.
Contacting EPCU
If you have questions about how this project relates to your retirement plan, email us and include “401(k) Excess Deferrals” in the subject line.
