Code section 402(g) limits how much compensation a participant may elect to defer to a qualified plan each year. If a participant's elective deferrals exceed the applicable amount for the year, the excess deferral is includible in the employee's income for the year in which it was contributed. The IRS Employee Plans Compliance Unit (EPCU) recently reviewed common problems with reporting excessive elective deferrals in Box 12 of Form W-2. Common issues discovered by EPCU included 403(b) or 457 amounts on the Form W-2 coded as a 401(k) elective deferral and elective deferrals that were excessive and required a distribution to each affected participant along with the filing of Form 1099-R.
Plan sponsors should consider reviewing their W-2 forms for compliance and working with payroll providers to ensure proper reporting.