Paying taxes on 2023 earnings for excess contribution to ROTH IRA

Forum|Forum|1 year ago
March 28, 2025
2 replies
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I made an excess contribution of $4350 to my ROTH IRA in 2023 which was returned in April 2024 before my on-time taxing filing. Turbo Tax is telling me I need to amend my 2023 return in order to pay taxes on the earnings for this excess contribution which were $548. The problem is that when I try to amend the return online, Turbo is telling me I owe $149 in federal taxes and $318 in state taxes. Obviously, I should not be charged an 85% tax on $548 in earnings. Do I understand correctly that the penalty charged should be 10% of the earnings plus interest? $318 must be a mistake, right? What is going on here and how do I fix it? Please help.

TurboTax Free Edition Online

DanaB27

The earnings will be taxed according to your tax bracket but you should not have the 10% early withdrawal penalty.

Click on the "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
Click "Continue" after all 1099-R are entered and answer all the questions.
Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

What is you state? You might have to review all of your state question carefully. Only the earnings from box 2a should be taxable.

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taxtherichmoreAuthor

Thank you very much, DanaB27, for your reply.

I will attempt to take your advice. Just to be clear, are you offering advise for the amended 2023 return or for my 2024 return?

You asked me about the state. The state is NJ. Clearly the state tax is too high. I'm wondering whether this is a Turbo Tax error. Hopefully, your advice fixes it and, if not, I hope there is a way to get Turbo Tax to fix the bug or to type in the correct numbers manually.

Thanks again!

dmertz

Employee

$149 might be reasonable for federal tax, but $318 for state tax sounds unreasonable.

On your federal tax return, make sure to indicate that the $548 qualifies for the exemption on earnings distributed with a returned contribution after December 29, 2022 so that you are not assessed a 10% early-distribution penalty on the $548.

Regarding your state tax return, if you paid a balance due with your original state tax return, make sure that that is reflected on your state amendment.