Tax withholding can be declined, and, if the expected Form 8915-E works the same as Form 8915-B, the first two 1/3 portions are repaid before the filing deadline for the tax return on which each of those portions must otherwise be included as income and the last 1/3 is repaid by the end of the 3-year repayment period, no tax will ever need to be paid on the distribution in the first place. For example, if one takes a $30,000 Coronavirus-Related Distribution on July 1, 2020 and elects on 2020 Form 8915-E to have the income included equally over 3 years, then repays $10,000 by April 15, 2021, $10,000 by April 15, 2022, and the last $10,000 by July 1, 2023, no tax will ever need to be paid on the distribution. (The April 15 dates can be extended to October 15 by requesting filing extensions for those years and filing after making the corresponding repayment.)
Note, however, that the expected Form 8915-E has not yet been created by the IRS, but since the statute for CRDs mirrors that of the statute for Qualified 2017 Disaster Distributions, it's reasonable to think that the tax treatment of repayments will be the same.
