How do I enter amount for Schedule 2 Line 17h (Income you received from a nonqualified deferred compensation plan that fails to meet the requirements of section 409A )

Forum|Forum|4 years ago
April 3, 2022
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Hi,

I am using 2021 Turboxtax Premier.

I calculated what I should enter in Schedule 2 Line 17h.

How do I enter line 17h (Income you received from a nonqualified deferred compensation
plan that fails to meet the requirements of section 409A) using 2021 Turbotax Premier?

Thanks,

TurboTax Premier Online

Best answer by JulieS

I looked at the post from @Macuser

However, I can't locate the exact location where the interview mode questions on the "tax & interest on income received from certain nonqualified deferred compensation plan"" appear using 2021 Turboxtax

1) I clicked on the "Other Tax Situations" tab

2) Which section/category and its line do I click to get the interview mode questions?

This is how to find the interview question that you are looking for:

Select Other Tax Situations.
Select Miscellaneous tax forms, which is second from the bottom of your list.
Select Additional taxes and repayments at the bottom, click Start to the right.
Answer the first question Yes.
Click Continue on the repayment screen.
On the screen, Other Taxes, enter your amount in the 4th box, Taxes and interest received on Income Received from Certain Nonqualified Compensation Plans under Section 409A.

ColeenD3

What form was the income reported on?

Please see this LINK for the treatment of this income.

Independent contractors

A NQDC plan sponsor does, however, have responsibility to report payments of deferred compensation to its independent contractors. A company will report these amounts to their independent contractors on Form 1099-NEC (Nonemployee Compensation) and 1099-MISC (Miscellaneous Income) as discussed below, and the independent contractors in turn must include these on Schedule SE (Self-Employment Tax) of Form 1040 (U.S. Individual Income Tax Return). For tax years beginning in 2020 or later, the deferrals are reported on Form 1099-MISC, box 12.

At this time, the reporting of deferrals is optional. In the year paid, employers report NQDC on Form 1099-NEC, box 1.

These rules are summarized in the table here.

NT26Author

Hi ColleenD3,

The income was report in Box 12 of W-2 form (Z code).

2021 Turbotax Premier said that it does not cover 409A (code Z). Does this mean that I have to get a 1040 form, fill in by hand (including schedule line 17h) & file via USPS mail instead of via Turbotax ?

Thanks,
NT26

ColeenD3

No. You can include it. See this post from @Macuser for how to enter and a screenshot.

DianeW777

The code on your W-2 will automatically handle the income. You will manually enter the tax penalty. You will use the income amount in box 12 $150) to impose the tax rate of 20%. That is your additional taxable income from this nonqualified plan.

Z: Income under section 409( A ) on a nonqualified deferred compensation plan. This amount is also included in Box 1. It is subject to an additional 20% tax plus interest.

@alexmeller

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alexmeller

Thanks, Diane, this is pretty much what I thought, but I have two additional questions:

1. you mentioned that I needed to use 20% of the amount in box 12 Z - that's what I thought too, but what about the interest? It is mentioned everywhere, but I have no idea if it is really needed and how to compute it.

2. Since TurboTax shows an error when it sees box 12 Z (which probably will block me from e-filing), would you advise deleting this entry from W2 in TurboTax?

Thanks a lot again!

DianeW777

This is an additional underpayment interest penalty which may not apply to you. If there is any issue the IRS will send you a bill, which I do not foresee in this situation.

For purposes of clause (i), the interest determined under this clause for any taxable year is the amount of interest at the underpayment rate plus 1 percentage point on the underpayments that would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture.
US Code Section 409A

The indicator of information for the IRS with box 12, and code Z is the nonqualified amount and alert for the penalty. I can't advise you to delete the entry or leave it blank. I can say that the amount in box 12 is already included in box 1 as part of your taxable wage.

Likewise it's unclear as to whether this has different state rules. You can check to see if your state wages are the same as the federal amount in box 1. As long as the penalty is calculated and included on your return, it's likely there would be no change to the tax return. Keep all documentation and records with your tax return file.

@alexmeller

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