IRS Form 14568-G Guide: Excess Deferrals Compliance Rules

1. Introduction: What is Form 14568-G?

IRS Form 14568-G, officially titled Schedule 7 (Form 14568-G) – Model VCP Compliance Statement: Failure to Distribute Elective Deferrals in Excess of Section 402(g) Limit, is a specialized compliance schedule issued by the Internal Revenue Service (IRS). It is governed by Employee Plans (EP), an operating division within the IRS Tax Exempt and Government Entities (TE/GE) Division.

This form serves as an attachment to master Form 14568 (Model VCP Compliance Statement) under the IRS Voluntary Correction Program (VCP). It is used specifically by employers and retirement plan administrators who sponsor 401(k), 403(b), or SARSEP plans when an employee contributes more than the statutory annual elective deferral limit, and the excess amount is not returned by the mandatory April 15 deadline.

2. Purpose of the Form: Why Does Form 14568-G Exist?

Internal Revenue Code Section 402(g) establishes an annual statutory dollar ceiling on elective salary deferrals made by an employee across all retirement plans in a calendar year. Under Section 401(a)(30), a qualified retirement plan must include written plan language ensuring that elective deferrals never exceed this statutory limit.

If an employee defers funds in excess of the Section 402(g) limit under plans maintained by the same employer, the law allows the employer to return the excess funds with earnings by April 15 of the following year without disqualifying the plan. However, when an employer misses that April 15 deadline, the plan incurs a serious qualification failure. Form 14568-G solves this problem by providing a standardized, pre-approved correction method:

• Preventing Plan Disqualification: Violating Section 401(a)(30) technically disqualifies the entire retirement plan. Form 14568-G cures this qualification defect through formal IRS approval.
• Correcting Participant Accounts: It provides a uniform process to calculate and distribute the excess deferrals plus allocable investment earnings, and to forfeit any employer matching contributions improperly credited to the excess funds.
• Clarifying Tax Reporting: It establishes standard tax reporting rules on Form 1099-R so the late distribution is properly taxed without subjecting the employee to an additional 10% early withdrawal tax penalty.

3. Who Needs to File This Form?

Form 14568-G is completed by employers, business owners, and plan administrators (known as plan sponsors) who discover late excess deferrals in their retirement plans. You need to use this form if you meet the following criteria:

• You sponsor a retirement plan that allows salary deferrals, such as a Section 401(k) plan, Section 403(b) plan, or Salary Reduction Simplified Employee Pension (SARSEP).
• One or more employees made elective deferrals exceeding the statutory Section 402(g) limit across plans sponsored by your company or affiliated members of your controlled corporate group.
• Your organization failed to distribute the excess deferrals and allocable earnings to the affected employees on or before April 15 following the close of the calendar year of deferral.
• You are submitting an electronic Voluntary Correction Program filing via Pay.gov using IRS Form 8950 and master Form 14568.

4. Who Is Exempt / Not Required to File?

Form 14568-G applies strictly to uncorrected Section 402(g) limit violations in plans of the same employer. You are exempt or not eligible to use this schedule in the following situations:

• Timely April 15 Distributions: If your payroll or plan administration team caught the excess deferral and distributed the excess amount plus earnings on or before April 15 following the calendar year of deferral, no qualification failure occurred and no VCP filing is needed.
• Excesses Across Unrelated Employers: If an employee exceeded the annual limit by deferring funds into Plan A at a former employer and Plan B at your company, but did not exceed the limit in your plan alone, your plan did not violate Section 401(a)(30). That is an individual tax filing issue for the employee rather than a plan qualification failure.
• Excess Contributions from Nondiscrimination Testing (ADP Failures): Excess contributions caused by failing the Actual Deferral Percentage (ADP) test under Section 401(k)(3) are separate failures and are not corrected on Form 14568-G.
• Plans Under IRS Examination: If the IRS has already notified you that your retirement plan is under an Employee Plans audit, you cannot use VCP and must resolve errors through the Audit Closing Agreement Program (Audit CAP).

5. When to File: Deadlines and Frequency

Form 14568-G is an event-based filing rather than an annual tax filing. You prepare and submit it as soon as your administrative reviews or annual plan testing uncover that an excess deferral was not distributed by the statutory April 15 deadline.

To qualify for the Voluntary Correction Program and prevent plan disqualification, you must file before the IRS notifies your company that the plan is under examination. Once an audit notice is received, the VCP process is closed. After the IRS approves your submission and issues your signed compliance statement, the plan sponsor generally has 150 calendar days from the date of the compliance statement to distribute the excess funds, forfeit matching contributions, and adjust internal payroll controls.

6. Where and How to File

Form 14568-G is not filed on paper for initial submissions. It must be processed digitally through the federal government’s online payment and filing portal:

• Pay.gov Electronic Submission: Complete Form 14568-G as an attachment to master Form 14568. Merge these forms, participant contribution ledgers, earnings calculation spreadsheets, and plan documents into a single PDF package and upload it via Pay.gov alongside Form 8950 (Application for Voluntary Correction Program).
• Electronic User Fee Payment: The mandatory VCP user fee—which is determined by the total net assets in the retirement plan—must be paid electronically through Pay.gov at the time of submission.
• Supplemental Information: If the assigned IRS Employee Plans specialist requests additional payroll records or calculations, submit them through secure electronic channels or deliver them to the designated IRS address as per instructions provided by the specialist.

7. Step-by-Step Instructions to Fill Form 14568-G

Form 14568-G uses standardized language to document excess deferral failures, specify corrective payout calculations, and outline revised administrative controls. The table below summarizes its primary sections.

Section	Title	Required Information
Header	Plan & Sponsor Details	Plan name, Employer Identification Number (EIN), and 3-digit plan number (on every page).
Section I	Identification of Failures	Tax years affected, number of participants who exceeded limits, and total excess dollar amounts.
Section II	Description of Proposed Correction	Detailed explanation of corrective distributions (principal plus earnings), forfeiture of matching funds, and Form 1099-R reporting.
Section III	Administrative Procedures	Narrative describing updated payroll software limits and HR oversight to prevent future excess deferrals.
Section IV	Enclosures	Checkboxes for attached participant lists, payroll ledgers, earnings worksheets, and plan documents.

Header: Plan and Employer Information

Enter the complete legal name of the retirement plan, the plan sponsor’s nine-digit Employer Identification Number (EIN), and the three-digit plan number (such as 001). Federal rules require this exact header to appear at the top of every page of Form 14568-G and all attached exhibits.

Section I: Identification of Failures

Document the scope of the excess deferral failure. You will indicate each calendar year in which participants deferred amounts exceeding the statutory Section 402(g) limit, report the total number of participants affected in each year, and state the total dollar amount of excess deferrals involved.

Section II: Description of Proposed Method of Correction

Confirm the standardized correction methods required by the IRS under EPCRS:

• Corrective Distribution: The plan must distribute the excess deferrals plus allocable investment earnings (or minus allocable losses) from the date of the contribution to the date of distribution.
• Forfeiture of Matching Contributions: Any employer matching contributions made on behalf of the excess deferrals cannot remain in the participant’s account. These matching funds must be forfeited and placed into the plan’s forfeiture account to pay plan expenses or reduce future employer contributions.
• Tax Reporting: Because the April 15 deadline passed, the distribution of the excess deferral is subject to double taxation under federal law. The excess amount was already taxed in the year contributed (on Form W-2), and both the distributed excess amount and allocable earnings are taxable to the participant in the year distributed, reported on Form 1099-R. However, no 10% early withdrawal tax penalty applies.

Section III: Revision of Administrative Procedures

Explain the internal changes you have put in place to ensure compliance going forward. For example, explain how your payroll software has been configured to automatically stop salary deductions once a participant reaches the annual Section 402(g) limit, or describe multi-division payroll tracking controls implemented across related corporate entities.

Section IV: Enclosures and Attachments

Assemble and check off all supporting documentation, including the list of affected participants, payroll summaries, earnings calculation worksheets, and copies of current plan document sections addressing Section 402(g) limits.

8. Required Documents and Information Needed Before Filling

Before preparing Form 14568-G, compile the following payroll and plan records:

• Detailed payroll withholding ledgers and Form W-2 copies showing total employee salary deferrals across all pay periods for the affected years.
• Participant account statements showing the timing of deferral deposits, account balances, and investment returns.
• Spreadsheets calculating each participant’s excess deferral, allocable investment earnings or losses, and associated matching contribution forfeitures.
• Written plan document provisions governing elective deferrals and Section 401(a)(30) limit compliance.
• Completed master Form 14568 and Form 8950.
• A signed Form 2848 (Power of Attorney) if a CPA, ERISA attorney, or third-party administrator represents your organization.

9. Common Mistakes to Avoid

Errors on Form 14568-G can complicate your submission and delay IRS approval. Be sure to avoid these frequent errors:

• Failing to Forfeit Associated Matching Funds: A plan cannot provide matching contributions on deferrals that were legally impermissible. Leaving matching contributions in the participant’s account invalidates the correction.
• Omitting Allocable Earnings or Losses: You cannot simply distribute the flat excess contribution amount. Federal rules require you to calculate and adjust for investment gains or losses through the distribution date.
• Altering Model Language: The wording in Form 14568-G is pre-approved by the IRS. Striking out or rewriting standard text can cause the IRS to reject the filing as a model submission.
• Incorrect Form 1099-R Tax Coding: Distributing excess deferrals after April 15 requires specific tax reporting codes (typically Code E on Form 1099-R) to reflect that the distribution is taxable in the year paid.
• Missing the 150-Day Correction Window: You must distribute all excess funds, process matching forfeitures, and finalize administrative updates within 150 days of receiving the signed IRS compliance statement.

10. Penalties for Non-Filing or Errors

Ignoring late excess deferrals can result in severe financial penalties if the IRS discovers the mistakes during an audit:

• Plan Disqualification: Violating the Section 401(a)(30) requirement to cap deferrals at the 402(g) limit is a disqualifying defect that can revoke the tax-exempt status of the entire retirement trust.
• Disallowed Employer Deductions: The employer may lose business tax deductions claimed for company contributions made during open tax years.
• Immediate Participant Taxation: If the plan is disqualified, all vested account balances become immediately taxable to all plan participants as ordinary gross income.
• Substantial Audit CAP Sanctions: If the IRS uncovers the uncorrected excess deferrals during an audit, the employer must negotiate a monetary sanction under Audit CAP, which is significantly more expensive than standard VCP user fees.

11. Related Forms or Schedules

Form 14568-G operates within an interconnected system of retirement plan compliance forms:

• Form 14568: Model VCP Compliance Statement (the primary master application).
• Form 14568-B: Schedule 2 – Nonamender Failures for 401(a) Plans.
• Form 14568-E: Schedule 5 – Plan Loan Failures.
• Form 8950: Application for Voluntary Correction Program (VCP) Submission.
• Form 8951: Additional User Fee Payment for Open VCP Request.
• Form 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
• Form 5500 / 5500-SF: Annual Return/Report of Employee Benefit Plan.
• Form 2848: Power of Attorney and Declaration of Representative.

12. Frequently Asked Questions (FAQs)

1. What is the difference between an excess deferral and an excess contribution (ADP failure)?

An excess deferral occurs under Section 402(g) when an individual’s salary contributions exceed the annual statutory dollar cap. An excess contribution occurs under Section 401(k)(3) when the plan fails the annual Actual Deferral Percentage (ADP) nondiscrimination test comparing highly compensated employees to non-highly compensated employees.

2. Can late excess deferrals be corrected under the Self-Correction Program (SCP)?

Under IRS EPCRS guidelines, failure to distribute excess deferrals by the April 15 deadline is a violation of Section 401(a)(30). While certain operational errors qualify for SCP, late Section 402(g) distributions generally require formal submission under the Voluntary Correction Program using Form 14568-G to obtain binding qualification relief.

3. How is the late distribution of excess deferrals taxed to the employee?

Under federal tax rules, excess deferrals not distributed by April 15 face double taxation. The excess amount was included in taxable wages on Form W-2 for the year of deferral. When distributed later, both the principal excess amount and allocable earnings are reported on Form 1099-R as taxable income in the year distributed.

4. Does the 10% early withdrawal tax penalty apply to late corrective distributions?

No. Even though the corrective distribution is taxable upon receipt, Section 72(t) early distribution tax penalties do not apply to corrective distributions of excess deferrals and allocable earnings.

5. What happens to employer matching contributions tied to the excess deferral?

Any matching contributions allocated to the excess deferral cannot remain in the participant’s account because you cannot provide employer matching on an impermissible contribution. The matching funds must be forfeited to the plan’s forfeiture account.

6. How much is the IRS user fee for submitting Form 14568-G?

The VCP user fee is based on the total net assets held in the retirement plan at the time of submission, typically ranging between $1,500 and $3,500, paid directly through Pay.gov.

13. Conclusion: Key Takeaways

IRS Form 14568-G provides an essential compliance mechanism for employers sponsoring 401(k), 403(b), or SARSEP plans. By utilizing this standardized schedule under the Voluntary Correction Program, plan sponsors can correct missed Section 402(g) distribution deadlines, remove excess funds from participant accounts, and ensure their retirement plans remain fully tax-qualified.

Because calculating allocable investment earnings and processing matching contribution forfeitures requires precise payroll and accounting records, plan sponsors should work closely with an experienced benefits attorney, third-party administrator, or CPA when preparing Form 14568-G.