The same relief applies to loan repayment.
If you lost your job or experienced hardship due to COVID-19, the unpaid 401-K loan balance may qualify as a COVID-19 distribution. The New COVID-19 Relief package allows this distribution for a greater flexibility as far as how income taxes are paid. You may be allowed to have an additional year to repay the loan, or upon the distribution, you will not be subject to the 10% early withdrawal penalty, and may be "recontributed" for up to three years.
Before Covid, if you do not repay the loan, it will be treated as a taxable distribution income and subject to 10% early withdrawal penalty if you are under age 59 1/2.
For more information, click on these links:
Delay repayment
Covid 19 tax treatment
In TurboTax online,
- Sign in to your account and select Pick up where you left off
- From the upper right menu, select Search and type in 1099r and Enter
- Select the Jump to 1099r
- Follow prompt
- On screen," Do any of these situations apply to you?" select the first one related Covid
- On screen," Any Periodic Payments?" select No
- Next screen, " Was this withdrawal due to Covid 19 or a Qualified Disaster Distribution?" select Yes, follow prompts
- Next screen," Did taxpayer repay any distribution?" select Repaid all of the distribution
- Next screen," Does taxpayer want to pay all the tax this year?"
- Follow prompts
The total distribution amount should show on line 5a of your Form 1040. It is only for reporting purposes. It is not taxable. The 1/3 portion should show on Schedule 1 as other income.
"For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution."
@TinaW65
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