What Is Form 5330 for a 401(k) Plan?

Form 5330 is the IRS return used to report and pay several excise taxes connected with employee benefit plans. For a 401(k), the filing usually sits beside the correction—not in place of it. A sponsor can restore participant losses perfectly and still owe an excise tax; a taxpayer can pay the excise tax perfectly and still leave the underlying ERISA or qualification failure uncorrected.^[1][2][3]

That separation is the organizing rule for the entire form.

The Form Is Broader Than Prohibited Transactions

The return is formally titled:

Return of Excise Taxes Related to Employee Benefit Plans.^[1][2]

It reports taxes under numerous Code sections.

Most of those provisions are not routine 401(k) issues.

Three deserve special attention in ordinary defined-contribution work:

Section 4975

Prohibited transactions.

Section 4979

Excess contributions and excess aggregate contributions connected with ADP/ACP testing.

Section 4972

Nondeductible employer contributions to qualified plans.

Those three can arise from completely different facts.

They also can have different taxpayers, tax bases and due dates.

Start With the Tax, Not the Form

A common workflow error is:

"Form 5330 is required. What number goes on it?"

That starts too late.

First ask:

1. Which Code section imposed the tax?
2. Who is liable under that section?
3. What is the statutory tax base?
4. What period does the tax cover?
5. When is that particular return due?
6. Has the underlying transaction or plan failure been corrected?

The form is the reporting mechanism.

It does not supply the legal diagnosis.

Section 4975 Is Usually the Most Important 401(k) Use

Code Section 4975 imposes excise taxes on a:

disqualified person

who participates in a prohibited transaction with a covered plan.^[1][4][7]

For a qualified 401(k), prohibited transactions can include direct or indirect:

• sales or exchanges with a disqualified person
• leases
• loans or extensions of credit
• furnishing goods, services or facilities
• use of plan assets for a disqualified person's benefit
• fiduciary self-dealing
• fiduciary receipt of consideration from a party dealing with the plan.^[1][5]

INV-076 covers the substantive prohibited-transaction rules.

INV-127 focuses on the tax return that follows when no exemption removes the tax.

The Plan Is Not Automatically the Taxpayer

For this prohibited-transaction tax, the liable filer is generally the:

disqualified person

who participated in the prohibited transaction.^[1]

That can be:

• employer
• fiduciary
• service provider
• owner
• related entity
• another person within the statutory definition.

The 401(k) trust is not simply handed the tax bill because its assets were involved.

A Fiduciary Acting Only as a Fiduciary Has a Specific Rule

Current IRS instructions describe the Section 4975 filer as a disqualified person liable for participating in the transaction:

other than a fiduciary acting only as such.^[1]

That language matters.

Do not infer liability from the word:

fiduciary

alone.

Identify the person's statutory role in the transaction.

The Initial Section 4975 Rate Is 15%

The first-tier tax is generally:

15% of the amount involved

for each year or part of a year in the taxable period.^[1][4]

That sentence has three moving pieces:

• amount involved
• each year or part of a year
• taxable period.

Most miscalculations come from getting one of those wrong.

"Amount Involved" Is Not Always the Cash That Moved

The general rule looks to the greater of:^[1][4]

• money plus fair market value of property given
• money plus fair market value of property received.

For services covered by the applicable rules, the tax base can focus on:

excess compensation.

For use of money or property, the relevant value can be the value of the:

use

rather than the underlying asset itself.^[1]

That distinction is especially important for loans and late deferrals.

Example: Prohibited Loan

A disqualified person improperly borrows:

$500,000

from the plan.

Do not automatically calculate:

$500,000 × 15% = $75,000.

For use of money, the IRS instructions look to the greater of:

• amount paid for the use
• fair market value of that use

for the relevant period.^[1]

The tax base can therefore be much smaller than the principal.

The transaction is still serious.

The tax formula is simply more specific than the headline loan amount.

The Taxable Period Determines How Long the First-Tier Tax Runs

For this excise tax, the taxable period begins on the transaction date and ends on the earliest of:^[1][4]

• completion of correction
• mailing of an IRS notice of deficiency for the tax
• IRS assessment of the Section 4975(a) tax.

Correction timing therefore affects more than participant economics.

It can affect the tax period itself.

Ongoing Use Can Create New Transactions in New Tax Years

The instructions treat certain continuing uses of:

• money
• property

as more than one prohibited transaction over time.^[1]

A transaction occurs on the original date.

A new one can be deemed to occur on the first day of each succeeding tax year—or portion of a tax year—within the taxable period.

This is why one underlying arrangement can create multiple tax-year calculations.

Example: Prohibited Loan Crosses Year-End

Assume:

loan begins:

July 1, 2025

correction occurs:

March 31, 2026

calendar-year taxpayer.

The analysis can include:

• 2025 prohibited transaction
• new 2026 deemed transaction for the continuing use.

Each has its own amount-involved calculation for the applicable period.

One original loan does not necessarily mean one year's excise tax.

A Separate Section 4975 Form Can Be Required for Each Tax Year

The current instructions state that a disqualified person engaging in a prohibited transaction must file a separate return for:

each tax year

for which prohibited-transaction tax is due.^[1]

That rule becomes important when the taxable period spans more than one year.

Do not put several taxpayer years onto one form merely because they arise from the same transaction.

The 100% Additional Tax Is the Real Escalation Risk

If the prohibited transaction is not corrected within the taxable period, the second-tier rule can impose an additional tax equal to:

100% of the amount involved.^[1][4]

That is separate from the 15% first-tier tax.

The economic incentive is obvious:

correct before the second tier becomes unavoidable.

What Counts as Correction?

The current IRS materials describe correction as:

• undoing the prohibited transaction to the extent possible
• and placing the plan in a financial position no worse than if the disqualified person had acted under the highest fiduciary standards.^[1][4]

Writing the tax check is not part of that definition.

The plan has to be repaired economically.

Payment Does Not Cure the Transaction

Assume:

initial tax:

$8,000

participant/plan loss:

$30,000

The disqualified person pays $8,000 to Treasury.

If the plan is still short $30,000:

the transaction is not corrected merely because the excise-tax return was filed.

Government tax and plan restoration are separate cash flows.

Late Participant Deferrals Have a Special Tax-Base Rule

This is one of the most important 401(k)-specific tax nuances.

When an employer fails to transmit participant contributions or elective deferrals timely, the prohibited-transaction tax base is not generally the entire amount withheld from payroll.^[1][6]

Revenue Ruling 2006-38 provides an interest-based method for the excise-tax calculation.

That can make the tax dramatically smaller than 15% of principal.

Why Principal Is Not the Tax Base for Late Deferrals

Suppose employee deferrals of:

$100,000

were transmitted late.

A casual calculation might be:

$100,000 × 15% = $15,000.

That is generally not the Rev. Rul. 2006-38 framework for this specific prohibited transaction.

The tax focuses on the economic value of the employer's temporary use of the participant money.

The ruling calculates an:

interest-based amount involved.^[6]

The Applicable Interest Rate Comes From Section 6621

Rev. Rul. 2006-38 states that, for a timely filed excise-tax return involving failure to transmit participant contributions or cash-payable amounts, the Section 6621(a)(2):

underpayment rate

on the date of the prohibited transaction is an appropriate rate for calculating the amount involved.^[6]

That is a technical tax calculation.

It is not necessarily the same return assumption used for DOL lost earnings.

DOL Lost Earnings and IRS Amount Involved Are Different Calculations

A late-deferral correction can involve at least two numbers:

DOL/plan restoration

Lost earnings owed to the plan or participants under the applicable fiduciary correction method.

IRS excise-tax base

Amount involved for Section 4975 under Rev. Rul. 2006-38.

Those numbers can differ.

Do not reuse one simply because it was calculated first.

Example: Late Deferrals

Assume:

• $80,000 withheld
• funds deposited late
• DOL lost earnings = $1,200
• Rev. Rul. 2006-38 amount involved = $900.

The initial excise-tax calculation would begin from:

$900 × 15% = $135

for the relevant tax-year calculation.

It would not automatically be:

$80,000 × 15% = $12,000.

The employer still has to restore the participant money and applicable earnings.

Small tax does not mean small fiduciary problem.

Timing Across Year-End Still Matters for Late Deferrals

Rev. Rul. 2006-38 itself demonstrates that a continuing use can create tax calculations across more than one tax year.^[6]

An amount withheld late in December and not corrected until the next year can have:

• transaction-period calculations in year one
• additional year-two treatment

under the ongoing-use framework.

The correction spreadsheet should be built by:

transaction date + tax year

not only by participant.

PTE 2002-51 Can Eliminate Certain Section 4975 Tax and Filing

DOL's VFCP is paired with:

Prohibited Transaction Exemption 2002-51.^[10][11]

When a transaction qualifies and every condition of:

• VFCP or its applicable self-correction route
• PTE 2002-51

is satisfied, DOL materials state that certain prohibited-transaction excise-tax liability can be relieved.

For those qualifying corrected transactions, the filer can also be relieved from the related excise-tax return obligation.^[10][11]

VFCP Alone Is Not Enough

Do not simplify the rule to:

"A VFCP correction means no IRS excise-tax return is needed."

The excise-tax relief depends on satisfying:

PTE 2002-51

and its transaction-specific conditions.^[10]

A VFCP correction can be valid for ERISA enforcement purposes while the tax exemption still requires separate confirmation.

INV-124 covers that distinction in detail.

The 2025 VFCP Changes Matter Here

DOL's 2025 update, effective March 17, 2025, expanded the related class exemption to cover qualifying Self-Correction Component transactions.^[10]

That makes the excise-tax analysis especially important for:

• late participant contributions
• late participant loan repayments
• certain other covered VFCP transactions.

The right sequence is:

correct → test PTE conditions → determine whether prohibited-transaction tax or a return filing remains.

Not:

file Form 5330 automatically before checking the exemption.

ADP/ACP Can Trigger a Separate Employer Excise Tax

The same return also reports the employer excise tax imposed by Section 4979.^[1][8]

This tax is connected with:

• excess contributions under the ADP rules
• excess aggregate contributions under the ACP rules.

INV-087, INV-088 and INV-108 cover the testing and corrective distributions.

Here the question is:

Was the excess corrected quickly enough to avoid the employer excise tax?

The ADP/ACP Excise-Tax Rate Is 10%

The Code generally imposes a:

10% excise tax

on the applicable excess contributions or excess aggregate contributions when the statutory conditions are met.^[8]

The taxpayer is generally:

the employer maintaining the plan.^[1]

That differs from the prohibited-transaction regime, where the liable person is the participating disqualified person.

The 2½-Month Window Matters

The current Form 5330 instructions state that there is generally no the employer excise-tax liability when the excess and allocable income are distributed—or forfeited when applicable—within:

2½ months after the end of the plan year.^[1]

That is the employer excise-tax window.

It is not the final deadline for every possible correction.

Example: Calendar-Year ADP Failure

Plan year ends:

December 31, 2026

Assume ADP excess is not corrected within the applicable 2½-month period.

The plan may still have a later statutory correction route.

But the employer can already have crossed the line for:

the employer excise tax.

Those are two different clocks.

The Tax-Return Due Date Comes Much Later

For this tax, the return is due by:

the last day of the 15th month after the close of the plan year to which the excess relates.^[1]

For a calendar-year plan ending December 31, 2026:

the ordinary due date is:

March 31, 2028

subject to weekend/holiday rules.

That long filing deadline should not be mistaken for the correction deadline.

Correction Deadline vs. Tax-Return Deadline

This distinction matters:

2½ months

Potential avoidance of the employer excise tax.

Later statutory correction deadline

Whether the ADP/ACP failure can still be corrected through ordinary distribution/forfeiture rules before more complex consequences arise.

Last day of 15th month

Excise-tax return deadline for the Section 4979 liability.

Three dates.

Three different legal effects.

Schedule H Handles Section 4979

The current return uses:

Schedule H

for this employer-level testing tax.^[1]

The employer should reconcile that filing to the underlying testing file:

• plan year
• ADP/ACP test
• HCE population
• excess amount
• correction date
• earnings
• distributions
• forfeitures.

The tax return should be traceable back to the failed test.

Nondeductible Contributions Create a Third 401(k) Tax Regime

Schedule A reports excise tax under:

Section 4972

on certain nondeductible employer contributions to qualified plans.^[1][9]

The tax is generally:

10%

of the nondeductible contributions in the plan as of the end of the employer's tax year.^[1]

INV-104 covers the employer deduction limit.

The Form 5330 issue begins after the contribution exceeds the deductible framework and no applicable statutory exception removes it from the tax base.

Nondeductible Does Not Mean "Only No Deduction"

A sponsor can make this mistake:

"The contribution exceeded the current deduction limit, so the excess deduction can simply be carried forward."

The nondeductible-contribution rule can create a separate excise tax.

The deduction analysis and excise-tax analysis therefore need to be run together.

The Nondeductible-Contribution Tax Has Important Exceptions

The Code and current IRS instructions contain exceptions affecting the tax calculation, including rules for certain defined contribution situations.^[1][9]

Do not compute 10% simply from:

contribution − current deduction

without reviewing the statutory adjustments.

The carryforward history also matters.

Schedule A Handles Nondeductible Contributions

The employer generally files:

Schedule A

of the excise-tax return for the nondeductible-contribution tax.^[1]

The correction file should reconcile:

• contribution amount
• Section 404 deduction
• prior nondeductible carryforward
• amounts later deductible
• amounts properly returned where permitted
• statutory exceptions.

This is tax work.

It cannot be reconstructed reliably from the plan trust balance alone.

Three Common 401(k) Excise-Tax Regimes

The same form is doing three different jobs.

The Due Dates Are Not Uniform

For ordinary 401(k) uses, current instructions provide:^[1]

Section 4975

Last day of the 7th month after the end of the tax year of the employer or other liable person.

Section 4972

Last day of the 7th month after the end of the tax year of the employer or other filer.

Section 4979

Last day of the 15th month after the close of the plan year to which the excess relates.

That difference alone can force separate returns.

Same Form Does Not Mean Same Filing Calendar

Suppose an employer has:

• prohibited-transaction excise tax
• Section 4979 ADP excise tax.

The due dates differ.

The instructions say to file one Form 5330 for excise taxes with the same filing due date.

Taxes with different due dates should not be forced onto one return.^[1]

The form is consolidated only where the filing rules line up.

Separate Plans Generally Mean Separate Forms

Current instructions generally require separate returns when taxes arise from:

separate plans.^[1][3]

That matters for employers sponsoring:

• 401(k)
• profit-sharing plan
• cash-balance plan.

Do not combine unrelated plans merely because the same company sponsors them.

There Is a Newer Financial-Institution Exception

The December 2025 guidance added a special rule for a financial institution that is itself a disqualified person and engaged in prohibited transactions involving multiple IRAs or plans.^[1]

That financial institution generally files:

• one return under its EIN
• pays the appropriate tax
• attaches a list of impacted plans/IRAs.

That is a specific exception.

It does not erase the general separate-plan rule for ordinary employers.

Filing Can Affect the Statute of Limitations

The instructions contain a subtle rule:

filing the return generally starts the limitations period only for the particular excise taxes reported on that return.^[1]

But prohibited-transaction excise-tax limitations are tied differently:

to filing of the applicable Form 5500.^[1]

That is not a reason to skip Form 5330.

It is a reason not to assume:

"filing the excise-tax return started every related limitations period on that date."

Who Signs the Form?

The named filer is the person/entity liable for the tax.

For Section 4975 that can be:

• individual
• company
• financial institution
• another disqualified person.

For employer-level Sections 4972 and 4979, the employer is generally the filer.^[1]

Use the taxpayer's:

• name
• EIN or SSN as applicable
• tax year

rather than treating the plan trust as the default taxpayer.

The Plan Number Matters

The return requires the plan's:

three-digit plan number

where applicable.^[1][3]

That number is paired with the employer EIN to identify the plan across:

• IRS
• DOL
• PBGC systems.

Leaving it blank can delay processing.

A tax adviser who works only from the business return may not have it.

The benefits team should.

Electronic Filing Is Now a Real Compliance Rule

For tax years ending on or after December 31, 2023, a filer generally must e-file if the filer is required to file at least:

10 returns of any type

during the calendar year in which Form 5330 is due.^[1][3]

The count can include:

• Forms W-2
• Forms 1099
• income-tax returns
• employment-tax returns
• excise-tax returns.^[1]

A midsize employer can cross the threshold easily.

Paper Filing When E-Filing Is Required Can Count as No Filing

The current instructions are unusually direct:

if a mandatory e-filer submits paper instead, the filer is treated as:

not having filed the return.^[1]

That can create failure-to-file consequences even though a paper form physically reached the IRS.

Do not treat filing method as clerical.

Waivers and Administrative Exemptions Can Exist

The IRS can waive mandatory e-filing for:

• undue hardship
• specified administrative circumstances
• unsupported electronic filing situations.^[1]

A filer relying on an exception should preserve evidence of why it applied.

Do not assume:

"the preparer prefers paper"

is a waiver.

Form 8868 Is the Extension Form

Current instructions use:

Form 8868

to request additional time to file.^[1]

The extension can be up to:

six months

after the normal due date when properly requested.

This changed an older workflow.

Form 5558 Is No Longer the 5330 Extension Form

The instructions expressly state:

Form 5558 is no longer used for this extension.^[1]

That is an easy operational mistake for benefits teams using old checklists.

Update the calendar and procedure.

Extension to File Does Not Extend Payment

Form 8868 can move the return deadline.

It does not move the tax payment deadline.^[1]

Any tax due remains payable by the ordinary due date.

Interest can accrue on unpaid tax even when the filing extension is valid.

This is the difference between:

return deadline

and:

money deadline.

Example: Extension Filed Correctly

Prohibited-transaction return due:

July 31

Filer submits Form 8868 timely and receives a six-month extension.

Tax due:

$12,000

If the filer waits six months to pay the $12,000:

the extension does not protect the payment from interest and applicable late-payment consequences.

The filing can be timely.

The money can still be late.

Different Excise-Tax Due Dates Can Require Different Extensions

The current instructions say a separate Form 8868 is required for excise taxes with different return due dates.^[1]

If all taxes on the intended return have the same deadline:

one extension request can cover them.

Again, identify the tax before building the filing package.

Late Filing Can Add Up Quickly

Current IRS instructions say failure to file can trigger a penalty of:

5% of unpaid tax per month or part of a month

up to:

25%.^[1]

Reasonable cause can prevent the penalty when properly established.

That is separate from the underlying excise tax.

Late Payment Has Its Own Penalty

Failure to pay can generally trigger:

0.5% of unpaid tax per month or part of a month

up to:

25%.^[1]

Interest also accrues under the federal rules.

A late filing can therefore carry:

• excise tax
• failure-to-file penalty
• failure-to-pay penalty
• interest.

The smaller the underlying tax, the more frustrating the avoidable filing penalties can be.

Reasonable Cause Needs Facts

The instructions allow reasonable-cause treatment for specified filing/payment penalties.^[1]

A strong explanation should document:

• what happened
• why ordinary business care was exercised
• when the issue was discovered
• how quickly the taxpayer filed and paid
• what control changed.

A sentence such as:

"the requirement was not identified before the deadline"

is usually weaker than a documented operational chronology.

An Amended Return Has Real Uses

The form can be amended to:^[1]

• claim a refund of overpaid tax
• claim credit
• report additional tax due for the same filer tax year when the applicable filing structure permits.

A refund claim needs:

• detailed explanation
• supporting evidence.

Do not treat an amended excise-tax return as a blank correction memo.

Example: Section 4975 Amount Involved Was Overstated

Original filing used:

principal amount

for a late-deferral tax base.

Later review determines Rev. Rul. 2006-38 should have produced a much smaller interest-based amount involved.

An amended return can become part of the refund/credit process.

The taxpayer should preserve:

• original calculation
• corrected calculation
• legal authority
• proof of contribution timing
• tax payment.

Do Not Confuse the Excise-Tax Return With Form 5500

The names are similar.

Their jobs are not.

Form 5500

Annual employee-benefit plan information/reporting return.

Employee-plan excise-tax return

Excise-tax return filed by the person liable for specified employee-plan taxes.

A plan can need both.

Correcting one does not automatically correct the other.

Late Deferrals Can Touch Both Forms

If participant contributions were transmitted late:

Form 5500

The delinquency may need reporting as required under the annual-return instructions.

Employee-plan excise-tax return

Section 4975 excise tax may need reporting unless valid exemption relief applies.

DOL correction

Participant economic loss may need restoration.

EPCRS

Any plan-qualification consequence may need separate analysis.

One payroll error can create four workstreams.

The Tax Return Is Not VFCP

VFCP is a DOL fiduciary-correction program.

The tax filing belongs to the IRS.

The most useful relationship is:

VFCP can correct the ERISA violation; PTE 2002-51 can sometimes eliminate the related prohibited-transaction tax and filing.^[10][11]

Without the exemption, a successful fiduciary correction does not automatically remove the IRS tax.

The Tax Return Is Not EPCRS

EPCRS corrects qualification failures.

The IRS filing reports excise taxes.

Examples:

ADP failure

Corrective distribution fixes the testing problem.

the employer excise-tax rule can still impose an employer excise tax if correction missed the short window.

Prohibited transaction

EPCRS may address an operational consequence.

the prohibited-transaction tax can still require separate analysis.

Never let the existence of a correction program answer a tax-return question automatically.

Example: ADP Correction on April 15

Calendar-year plan.

ADP test fails for 2026.

Excess contributions are distributed:

April 15, 2027.

That is after the ordinary 2½-month period.

Assume the statutory Section 4979 conditions are met.

The employer may owe:

10% excise tax

reported on Schedule H.^[1][8]

The corrective distribution still serves the plan-testing correction.

Tax and correction coexist.

Example: Nondeductible Employer Contribution

Employer contributes:

$500,000

to a qualified defined contribution plan.

After applying Section 404 and relevant exceptions, tax advisers determine:

$60,000

is a nondeductible contribution subject to excise tax.

Initial nondeductible-contribution tax:

$6,000

before considering any carryforward or exception issues.^[1][9]

The employer files Schedule A.

The plan itself does not pay the $6,000.

Example: Prohibited Loan Continues for Two Years

Disqualified person uses plan money in a nonexempt loan.

Fair-market value of the use:

• 2025: $6,000
• 2026: $4,000 before correction.

Potential first-tier calculations:

• 2025 transaction: 15% × applicable amount involved
• 2026 deemed transaction: 15% × applicable amount involved

depending on the full taxable-period mechanics.^[1]

The instructions' own loan example demonstrates why successive-year analysis matters.

Example: VFCP + PTE Relief

Employer discovers late participant deferrals.

It:

• restores principal and lost earnings
• satisfies the current VFCP correction route
• satisfies all PTE 2002-51 conditions
• receives the applicable EBSA acknowledgment or relief.

DOL's current materials state that qualifying transactions can receive relief from certain Section 4975 excise taxes and the associated IRS return-filing requirement.^[10][11]

The tax file should document why no return was required.

Silence is not documentation.

When No Return Is Due, Keep a No-File Memo

If advisers conclude no excise-tax return is required, preserve:

• transaction facts
• Code section considered
• exemption relied on
• correction evidence
• PTE/VFCP documents where relevant
• calculation showing no tax
• deadline analysis.

Years later, the question may be:

Was the form forgotten or intentionally not required?

A one-page contemporaneous memo can answer that.

Build the Tax File Around the Taxpayer

For every tax, document:

Taxpayer

Who legally owes it?

Plan

Which plan is involved?

Code section

4972, 4975, 4979 or another employee-plan excise-tax provision?

Tax year / plan year

Which period controls?

Transaction or failure date

What started the obligation?

Correction date

What ended or changed the tax exposure?

Tax base

How was it calculated?

Filing deadline

Which row of the current due-date table applies?

Extension

Was Form 8868 filed?

Payment

When was Treasury paid?

Related correction

What separate plan/DOL/EPCRS work was completed?

That file is much easier to defend than a signed return with no workpapers.

A 401(k) Excise-Tax Decision Table

The column changes matter more than the fact that every row ends on the same IRS form.

What to Review Before Filing

Is there actually a taxable transaction?

Check statutory and class exemptions first.

Is the filer correct?

Employer and disqualified person are not interchangeable.

Is the tax base correct?

Especially:

• late deferrals
• use of money/property
• services.

Is more than one tax year involved?

Ongoing prohibited transactions can cross years.

Is the underlying problem corrected?

Do not let tax preparation distract from plan restoration.

Is PTE 2002-51 available?

For eligible VFCP transactions, this can eliminate tax and filing.

Does Section 4979 apply?

Check the exact correction date against the short statutory window.

Does Section 4972 apply?

Reconcile the deduction and statutory exceptions.

Is e-filing mandatory?

Count all relevant returns against the current threshold.

Is Form 8868 needed?

Use it for filing time—not payment time.

Frequently Asked Questions

What is Form 5330?

It is the IRS Return of Excise Taxes Related to Employee Benefit Plans.^[1][2]

Does every 401(k) plan file one annually?

No.

It is filed when a person is liable for one of the excise taxes reported on the form.

Who files for a prohibited transaction?

Generally the disqualified person liable for prohibited-transaction tax.^[1]

Does the 401(k) trust pay the tax?

Not simply because plan assets were involved. Identify the person on whom the Code imposes liability.

What is the initial Section 4975 rate?

Generally 15% of the amount involved for each year or part of a year in the taxable period.^[1][4]

Can there be a second tax?

Yes.

Failure to correct within the taxable period can trigger an additional 100% tax under Section 4975(b).^[1][4]

Is the tax on late employee deferrals 15% of the deferrals?

Generally no.

For failure to transmit participant contributions, the IRS applies the special interest-based amount-involved methodology described in Rev. Rul. 2006-38.^[1][6]

Is DOL lost earnings the same number as the prohibited-transaction amount involved?

Not necessarily.

They arise under different correction/tax frameworks.

Can one prohibited transaction require more than one Form 5330?

Yes.

A continuing transaction can span tax years, and current instructions require a separate prohibited-transaction return for each applicable tax year.^[1]

Who files when Section 4979 applies?

The employer generally files for Section 4979.^[1]

What is the Section 4979 rate?

10% of the applicable excess contributions/excess aggregate contributions under the statute.^[8]

When can the employer avoid the 10% tax?

The current instructions generally provide no excise-tax liability when the applicable excess and income are corrected within 2½ months after the plan year ends.^[1]

When is that Form 5330 due?

The Section 4979 return is due by the last day of the 15th month after the close of the plan year to which the excess relates.^[1]

What is Section 4972?

It generally imposes a 10% excise tax on certain nondeductible employer contributions to qualified plans, subject to statutory exceptions.^[1][9]

Can I combine all employee-plan excise taxes on one return?

Only when the filing rules permit. Current instructions generally combine taxes with the same due date for one plan and require separate returns for separate plans or different due dates.^[1]

How do I extend Form 5330?

Use Form 8868 under current IRS instructions.^[1]

Can I still use Form 5558?

Not for extending Form 5330. The instructions expressly moved that extension to Form 8868.^[1]

Does Form 8868 extend payment?

No.

It extends filing time, not the excise-tax payment deadline.^[1]

Is e-filing mandatory?

Generally yes when the filer is subject to the current 10-return threshold for tax years ending on or after December 31, 2023.^[1][3]

What happens if a mandatory e-filer sends paper?

Current instructions say the filer is treated as not having filed the return.^[1]

Can VFCP eliminate the excise-tax return requirement?

For specified prohibited transactions, yes—if the correction satisfies the applicable VFCP requirements and PTE 2002-51 conditions.^[10][11]

Does paying the excise tax mean the plan is corrected?

No.

The tax return and the underlying plan/fiduciary correction are separate.

The ROIStreet Form 5330 Workflow

Identify the underlying transaction or plan failure → identify the Code section imposing tax → identify the legally liable filer → check exemptions before calculating tax → determine the tax year and plan year → establish transaction and correction dates → calculate the correct tax base → for late participant funds, apply the Rev. Rul. 2006-38 framework rather than assuming principal is the base → determine whether the issue spans more than one tax year → determine whether Section 4979 or the nondeductible-contribution tax also applies → check the current due-date table → separate taxes with different filing dates → check the 10-return e-file threshold → use Form 8868 when more filing time is needed → pay by the original payment deadline → complete DOL, participant, EPCRS and Form 5500 correction separately → document any PTE 2002-51 no-file conclusion → retain return, calculations, payment proof and correction file together

The error to avoid is treating the excise-tax return as the punishment phase after the "real" correction work is done.

For a 401(k), the form is part of the correction architecture: it identifies the taxpayer, forces the right tax base and period, and exposes whether the sponsor has actually separated participant restoration, ERISA relief, plan qualification and federal excise tax into the distinct obligations they are.

Sources & References

1. Internal Revenue Service: Instructions for Form 5330 (Rev. December 2025) — https://www.irs.gov/instructions/i5330
2. Internal Revenue Service: About Form 5330 — https://www.irs.gov/forms-pubs/about-form-5330
3. Internal Revenue Service: Form 5330 Corner — https://www.irs.gov/retirement-plans/form-5330-corner
4. Internal Revenue Service: Retirement Topics — Tax on Prohibited Transactions — https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-prohibited-transactions
5. Internal Revenue Service: Retirement Topics — Prohibited Transactions — https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-prohibited-transactions
6. Internal Revenue Service: Revenue Ruling 2006-38 — https://www.irs.gov/irb/2006-29_IRB
7. Legal Information Institute / U.S. Code: 26 U.S.C. §4975 — Tax on Prohibited Transactions — https://www.law.cornell.edu/uscode/text/26/4975
8. Legal Information Institute / U.S. Code: 26 U.S.C. §4979 — Tax on Certain Excess Contributions — https://www.law.cornell.edu/uscode/text/26/4979
9. Legal Information Institute / U.S. Code: 26 U.S.C. §4972 — Tax on Nondeductible Contributions to Qualified Employer Plans — https://www.law.cornell.edu/uscode/text/26/4972
10. U.S. Department of Labor — Employee Benefits Security Administration: Fact Sheet — Voluntary Fiduciary Correction Program — https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/vfcp
11. U.S. Department of Labor / Internal Revenue Service / PBGC: 2025 Instructions for Form 5500 — https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2025-instructions.pdf

Educational Disclaimer

ROIStreet publishes educational content about retirement-plan excise taxes, prohibited transactions and correction. This article is not legal, tax, fiduciary, controversy, accounting or plan-administration advice. Form 5330 liability depends on the taxpayer, transaction, Code section, plan and tax year, correction timing, statutory or administrative exemptions, filing method, payment date and current IRS/DOL guidance.

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We strive to explain before we evaluate, present evidence before opinions, discuss risks alongside potential benefits, distinguish facts from analysis, and correct material errors transparently.

Our purpose is to help readers better understand investing—not to tell them what to do.