Can my employer reverse last year’s payroll and put the money towards my 401K

Question

In January 2023, my salary was below $150K, so I bought a Tesla thinking that I can get the $7500 federal EV credit.

Fast forward 9 months and my landlord increased my rent by 25%, forcing me to buy a home.

My realtor kept only a nominal fee, and returned back to me the majority of the 3% fee since it was a new home.

My salary plus the realtor’s refund puts my AGI above 150K.

Is it possible for my employer to reverse 3 payrolls from 2023 (on March 1 2024) and put the money directly towards last year’s 401K, so that my AGI would be less than 150K?

Thank you.

Answer 1

Fast forward 9 months and my landlord increased my rent by 25%, forcing me to buy a home.

You were not forced, you made a decision to purchase a house.

My realtor kept only a nominal fee, and returned back to me the majority of the 3% fee since it was a new home.

The fees and charges associated with buying a home impact the calculation of the cost basis of the purchase and how much you can deduct the year you purchase the house.

My salary plus the realtor’s refund puts my AGI above 150K.

The refund from the real estate agent isn't income to you.

But even if it was...

Looking at the Federal 1010 form:

• 9 Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income
• 10 Adjustments to income from Schedule 1, line 26
• 11 Subtract line 10 from line 9. This is your adjusted gross income
• 12 Standard deduction or itemized deductions (from Schedule A)

If you were counting on that fee being part of your itemized deductions that would happen the line after the adjusted gross income was calculated, so it wouldn't change your AGI.

Is it possible for my employer to reverse 3 payrolls from 2023 (on March 1 2024) and put the money directly towards last year’s 401K, so that my AGI would be less than 150K?

Even if what you proposed would have helped your tax situation, they can't do this. They paid you that money in 2023. They followed your instructions regarding pay and retirement. They already reported these numbers to the Federal and state governments. They closed the books on 2023. The 401(k) custodian will not accept the money and credit it to 2023 contributions.

Answer 2

(a) A refund of money paid in the same year is not counted as additional income. If you paid the realtor a fee and then some of it got refunded, the refund is not additional income. You already counted that money in your original income. As realtor fees are not normally deductible anyway, a refund of realtor fees is not taxable income in any case.

(b) I don't claim to know the law on this but I sincerely doubt that you can ask your employer to retroactively change 401k contributions. However, you CAN contribute to a private IRA for last year up until April 15. So you could make a payment to an IRA and subtract this from your income. (Not a Roth IRA, it would have to be traditional.) However, if you're enrolled in a 401k, you may not be eligible to make contributions to an IRA. You'd have to check details of your situation.

Answer 3

Depending on what your AGI was in 2022, you may be able to claim the credit based on your income from that year.

From irs.gov:

[To claim the credit] your modified adjusted gross income (AGI) may not exceed:

• $300,000 for married couples filing jointly
• $225,000 for heads of households
• $150,000 for all other filers

You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit.

Answer 4

Let's break down the important points here from afterwards previously commented on :

(a) Refund of Realtor Fees:

• When you receive a refund for money paid in the same year, it is not considered additional income. You've already accounted for that money in your original income.
• Realtor fees are typically not deductible, so a refund of realtor fees does not count as taxable income.

(b) Retroactive 401(k) Contributions:

• It's unlikely that you can ask your employer to retroactively change 401(k) contributions. Once contributions are made, they are generally fixed.
• However, you have an alternative: contributing to a private IRA (Individual Retirement Account) for the previous year. You can do this until April 15.
• Note that if you're already enrolled in a 401(k), your eligibility to contribute to an IRA may be affected. Check the specifics of your situation. consult a tax professional for personalized advice based on your circumstances!