Your immediate issue is that the refund has to occur by April 19. Otherwise, there is no way to avoid the draconian penalty of double taxation on the amount of your overcontribution.
Next issue is how to file for 2021. You do not need a corrected W-2. However, this is treated as additional wages, not “other income.” When you add this amount to your wages, it may appear to create a potential problem in that you are reporting an amount that does not match what is on your W-2 forms. But this is not a problem: IRS gets concerned when the amount reported as wages is less than shown on your Forms W-2, but not when it is more.
Tax reporting for retirement plan distributions includes a box for the amount distributed and another for the amount taxable. I believe for 2022 you’ll report the corrective distribution as amount distributed and zero as amount taxable. This assumes you receive the corrective distribution by April 19. It also assumes I’m remembering this correctly off the top of my head, so you should check before relying on these comments.
[Edited to correct my mistake in forgetting that this year the deadline is April 19.]
- This reply was modified 5 months, 1 week ago by Kaye Thomas.