It depends. You have misinterpreted the provision. The IRS will give you an option to pay the tax on the distribution over a three-year period. You will pay 1/3 this year, 1/3 the next, and 1/3 in the final third year. Here is how to report.
- Log into turbo tax
- Go to federal>income and expenses
- Retirement plans and Social Security>show more
- Ira (401K), pension plan Withdrawals(1099R) Start
- After entering your 1099R you will scroll through several screens until you reach a screen that says Tell us if any of these uncommon situations apply
- Here you will select the first choice
- I took out this money because of a qualified disaster (includes COVID-19)
- Scroll through the next few screens until you reach a screen that says is this a withdrawal due to COVID-19 or a Qualified Disaster Distribution?
- You will say yes, this was withdrawn due to COVID 19
- Next screen says COVID-19 distribution Here you will indicate that all or some was a COVID 19 withdrawal.
- Next will ask about your COVID related stuff. There is a checkbox that you must answer saying that you were financially impacted by COVID 19. This will waive the early withdrawal penalty.
- Then it asks if you repaid the distribution, you can say no unless you did.
- Then it asks if you want to pay the tax all the tax this year. leave the check box blank and continue.
- This will generate a 8915-E and will spread your taxable amount over a three-year period automatically.
Note: In the 6th step Turbo Tax asks if you wish to pay ALL the tax this year. Make sure that box is not checked.
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