Question

When Box 12 Code Z on W-2 is entered, TurboTax online says it does not support the calculations for Code Z on Form W-2. Is the return incomplete or may have errors?

Forum|Forum|3 years ago
April 10, 2023
2 replies
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If the return is complete and does not have errors, why will Turbotax not e-file when Box 12 Code Z is entered?

TurboTax Self Employed Online

Code Z is: Income under a nonqualified deferred compensation plan that fails to satisfy section 409A. This amount is subject to an additional 20% tax (TurboTax does not support this calculation)

TurboTax does not provide support for this because failure to make deferral or distribution elections in a timely manner is complicated and will require individualized special assistance.

Failure to comply with Section 409A definitions for specified terms are: Early payment of an amount payable in a later year. Late payment of an amount payable in an earlier year

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O

OjaiS8Author

Thank you. TurboTax is giving me the option to print and file because it won't e-file. In my case Box 12 is entered because there was Early payment of an amount payable in a later year. You noted failure to make deferral or distribution elections in a timely manner is complicated and will require individualized special assistance - does this mean the printed return from Turbotax is incomplete or subject to errors?

JohnB5677

The return is not incomplete, but TurboTax will not honor the accuracy guaranty if additional adjustments are required. I don't know what the adjustments would be, or even if any have to be made.

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D

dmertz

Employee

A tax return that includes a Form W-2 with code Z in box 12 can only be completed with the CD/download version of TurboTax and the tax return must be mailed. It cannot be e-filed. To complete the tax return you must calculate the penalty yourself (you might require professional assistance with this calculation) and in Forms mode enter this penalty on 2022 Schedule 2 line 17h. Absent this entry, your tax return is incomplete.

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rnkvogel

I have entry Schedule 2 line 17h as 20% of the amount of BOX 12 Z and this amount is a lot. Is there any information on calculating this amount other then "The tax is 20% of the amount required to be included in income plus an interest amount determined under Section 409A"?

The amount in 12 Z was already taxed and accounted for in box 1.

Any help on the calculation would help.

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dmertz

Employee

Section 409A(1)(B)(ii) says:

(ii)Interest
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.

Quarterly interest rates are listed here:

https://www.irs.gov/payments/quarterly-interest-rates

Via Google search I found this article discussing the calculation:

https://www.aon.com/attachments/human-capital-consulting/Premium_Interest_Tax_for_409A_Failures_JDC_Spring%202018.pdf