If Joe made an excess contribution and withdrew it before the due date, does he face additional tax on the income earned?

When an individual makes an excess contribution to a retirement account and later withdraws that excess before the due date for filing their federal tax return, they are typically not subject to additional tax on the contributions themselves. However, it is essential to understand that any earnings generated from the excess contributions during the time they were in the account could be subject to tax if they are not withdrawn along with the excess contribution.

In the case of Joe, since the correct response is that he does face additional tax on the income earned, this aligns with the general tax rules surrounding excess contributions. The income earned on those excess contributions is considered taxable income for the year in which the contributions were made, unless it is also withdrawn by the due date. Therefore, if the income is not removed, it will be taxed, confirming that he would indeed face additional tax consequences on any earnings accrued from the excess contribution that was maintained in the account beyond that due date.

This understanding captures the core principle about excess contributions and their tax implications regarding any associated income earned during the period those funds were in the retirement account.