Does a 401k Loan Show Up on Your W2?

A 401(k) plan offers a structured way to save for retirement. Many participants find themselves needing access to funds before retirement, and a common option is to take a loan from their 401(k) account. Understanding how these loans function and how they are reported on tax documents like the W-2 is important.

The Nature of 401(k) Loans

A 401(k) loan represents borrowing money from your own retirement account, not a withdrawal. The funds come directly from your vested account balance. Repayment of these loans is typically made through regular payroll deductions.

Interest is charged on 401(k) loans, but this interest is paid back to your own account, effectively increasing your retirement savings. The IRS and DOL set rules for these loans, including limits on the amount that can be borrowed, generally up to 50% of your vested account balance, with a maximum of $50,000. Loans typically require repayment within five years, though loans for a primary residence may have a longer term.

W-2 Reporting of Regular 401(k) Loan Activity

Regular 401(k) loan balances and scheduled repayments do not appear on an employee’s W-2 form. The W-2 form reports taxable wages, salaries, and other compensation, along with withholdings. A compliant 401(k) loan is not considered taxable income or a taxable event.

Repayments for a 401(k) loan are made with after-tax dollars. This means the money used for repayment is already taxed. Therefore, these repayments do not reduce your current taxable income or appear as a deduction on your W-2. The loan principal is returned to your retirement account, which is a non-taxable transaction.

When 401(k) Loan Information Appears on Tax Forms

Loan information can appear on other tax forms if a 401(k) loan is not repaid according to its terms, often resulting in a “deemed distribution.” A deemed distribution occurs when a participant fails to meet the loan’s repayment schedule or other IRS requirements (e.g., exceeding the maximum loan amount or repayment period).

If a 401(k) loan defaults, the outstanding balance is treated as a taxable distribution by the IRS. This amount is reported to the IRS on Form 1099-R, “Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,” not directly on the W-2. The deemed distribution amount is included in your gross income, and if you are under age 59½, it may also be subject to an additional 10% early withdrawal penalty. While the W-2 won’t show loan details, the taxable income from a deemed distribution contributes to your overall adjusted gross income, impacting your tax liability.