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CARES Act retirement distribution in turbotax software - penalty-free and paying 1/3rd

Forum|Forum|5 years ago
March 5, 2021
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Hi,

I did a CARES act withdrawal from my Workplace 401K. The CARES act allows me to 1) Avoid paying the 10% early withdrawal penalty. I also want to 2) Pay only 1/3rd of the tax this year and spread the rest out over 2021 and 2022 taxes.

I entered my 1099-R in Turbotax. However, there is no screen asking if this was a CARES act distribution. Where exactly in the software do I need to enter this so that it does the correct calculations? I am at the "These Situations May Lower Your Tax Bill" screen for exceptions, after entering my 1099-R, but there is no CARES act option.

Unfortunately, the software has bugs as the links on this screen (and other screen) that offer further tips/help are not working.

Please help!

Best answer by KathrynG3

These details are captured during the Form 1099-R interview. After entering all your details and selecting Done, more questions will follow.

Return to TurboTax and search for 1099-R. Select the Jump to link in the search results. Select the 1099-R that has the early distribution.

Verify that the questions were answered after entering Form 1099-R:
- Where is your distribution from?
  - If applicable, select: Pension/IRA distributions received before retirement age / None of the above
- Do any of these situations apply to you?
  - If applicable, select: I took out this money because of a qualified disaster (includes COVID-19)

For more information, see: What is Form 8915-E Qualified 2020 Disaster Retirement Plan Distributions and Repayments?

@jedes

C

Cynthiad66

Form 8915 E is now available and should be in your software for the 401K Deduction. Update your software. This form will be generated based on the interview questions. You may need to re-enter the Form 1099R to get to the questions again.

The CARES Act provides tax relief for up to $100,000 of COVID-19 related distributions from eligible retirement plans. So, if you, your spouse, your dependent, or a member of your household was impacted by the coronavirus and you withdrew from your retirement accounts in 2020 before the age of 59 ½, you may not have to pay the 10% early withdrawal penalty (or the 25% additional tax for SIMPLE IRAs).

When you enter your Form 1099-R, we’ll ask you a few questions to determine your eligibility for the exemption, and complete and include Form 8915-E in your return if you qualify.

To qualify for Form 8915-E and to be exempt from the early withdrawal penalty due to COVID-19, a few rules have to be met.

1. You have to be a qualified individual. To qualify, one of these must be true:

You, your spouse, or your dependent were diagnosed with COVID-19
You experienced adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19
You experienced adverse financial consequences as a result of being unable to work due to lack of child care due to COVID-19, or
You experienced adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to COVID-19

2. The withdrawal had to come from an eligible retirement plan, which could be any of the following:

A qualified pension, profit-sharing, or stock bonus plan (including a 401(k))
A qualified annuity plan
A tax-sheltered annuity contract
A governmental section 457 deferred compensation plan
A traditional, SEP, SIMPLE, or Roth IRA

3. The distribution had to have been made in 2020 before December 31, 2020.

There is also a $100,000 distribution limit to the exemption. Any distributions over that amount, may be subject to the additional tax.

When do I have to pay taxes on COVID-19 related distributions?

Can I repay a COVID-19 related distribution?

Form 8915E Used to Report CARES 401 Distribution

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W

wilder7273

Help - Additional question on this topic.

We took a distribution, and because we didn't pay anything back in 2020, it appears we need to claim this as income. The message we get in Turbo Tax is:

"Based on the code you entered in box 7 of this 1099-R, you're paying extra tax on this money." (The code that is in box 7 is a "1".)

Is this correct? I was under the impression, we would not be taxed on this money.

Or is it, that we pay tax now, and then if we repay the distribution in three years, we could be reimbursed for the tax we paid?

Advice welcomed!

J

JamesG1

See IRS Coronvirus Relief for Retirement Plans and IRAs. See Coronavirus-related distributions from workplace retirement plans and IRAs.

Taxes on distributions:

Coronavirus-related distributions:

Are included in taxable income
- Over a three-year period, one-third each year, or
- If elected, in the year you take the distribution.
Are not subject to the 10% additional tax on early distributions (including the 25% additional tax on certain SIMPLE IRA distributions) that may otherwise apply to most withdrawals before age 59 ½
Are not subject to mandatory tax withholding, and
May be repaid to an IRA or workplace retirement plan within three years, if eligible for tax-free rollover treatment.

Qualified 2020 Disaster Retirement Plan Distributions are reported on IRS Form 8915-E.

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D

Dalther2

Do we re-use the 1099-R which we filed our 1st 8915-E for the 1st portion of the payment? And would this 1099-R be reused for all 3? Sorry for the rookie question. Thanks..

M

murphsan84

I'm trying to figure out the same thing...if we use the same 1099 R form from 2020?

macuser_22

Employee

You do not use any 1099-R, just the 8915-F form when it is available.

If you do not have a 2021 1099-R it will ask if you have a 2021 1099-R, if you answer no it will ask if you have 1099-R income - say no and it will then ask if you had a disaster distribution from 2017-2020 - say yes.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

W

Wrusprod

So I'm curious. The full amount I took out of 401k in 2020 was reflected in my income last year.

So did I pay the full amount on it ?

I did the 3 year split I thought.

How do I know if I need to do the 8915 form?

macuser_22

Employee

@Wrusprod wrote:

So I'm curious. The full amount I took out of 401k in 2020 was reflected in my income last year.

So did I pay the full amount on it ?

I did the 3 year split I thought.

How do I know if I need to do the 8915 form?

Look at your 2020 1040 form line 5a and 5b. If line 5b is 1/3 the amount in box 1 on your 2020 1099-R form then you elected to spread it over 3 years.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

W

Wrusprod

Yep.thats correct! I does reflect it spread over 3 years. Thanks.

So I guess I just need to wait for the form to come out and complete it.?

Thanks for quick response!

T

Thaddeus12

I had Covid in 2020 and withdrew money from my 401k under the Cares Act. I had 10% Federal and 10% State taxes taken out from my withdrawals. I know there was no 10% penalty fee because of the Cares Act. When I filed last year I chose to claim that money over three years. 1/3 of my withdrawal was claimed as taxable income. I now have to claim the other 2/3 this year and next year. I have no idea how or where to enter this information and I'm not sure how to enter the 10% taxes I already had taken out in the form. Can anyone help me figure this out? Thank you.

F

FangxiaL

Here is how to report it once the form is e-file ready:

To report the 2021 CARES Act retirement plan distribution for 2020 that gave you 3 years to repay it back, follow these steps:

With your federal return open:

In the search box, type 1099-r, then Jump to 1099-r
On the next screen, select No if you did not receive a 1099-R in 2021
On the next screen, select Yes to Have you ever taken a disaster distribution before 2021?
Select Yes, I took a disaster distribution between 2017 and 2020 on the next screen
The message below is what you will see because the form is not ready as of today. The new form is expected sometime in March.

You'll need to revisit this area

Unfortunately, IRS instructions related to repayments of disaster distributions weren't ready in time for us to include them in this release. Please revisit this area later.

@Thaddeus12

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C

C-B-B

How can we be notified when this form is ready within TurboTax?

following

What if we took out money in 2021 and not in 2020. I was diagnosed in December and took a distribution in 2021. I did NOT file an 8945-E in 2020. The 1099-R for 2021 is showing a 1 in the box. When I called Fidelity they said they aren't allowed to ask health information and would not change it to a 2. It is hitting me with the entire amount due in one year. I have no problem paying for it but I need it rated over three years. I saw where TurboTax said 8945-F is coming out. I did the paper form from the IRS and it said I couldn't use it based on the worksheets. HELLLLPPPP! I don't want to do an installment program I just want to rate it over three years and pay it in 1/3 payments.

macuser_22

Employee

@d0nalba1n wrote:

What if we took out money in 2021 and not in 2020. I was diagnosed in December and took a distribution in 2021. I did NOT file an 8945-E in 2020. The 1099-R for 2021 is showing a 1 in the box. When I called Fidelity they said they aren't allowed to ask health information and would not change it to a 2. It is hitting me with the entire amount due in one year. I have no problem paying for it but I need it rated over three years. I saw where TurboTax said 8945-F is coming out. I did the paper form from the IRS and it said I couldn't use it based on the worksheets. HELLLLPPPP! I don't want to do an installment program I just want to rate it over three years and pay it in 1/3 payments.

The 8915-F is for disaster related distributions in 2020 or earlier and does not apply to any 2021 distribution regardless of the reason.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**