Your loan offset which is the result of your job loss due to to Covid-19 is considered by the IRS as a Covid-related distribution.
Please read page 6 of this IRS document.
As such, the loan offset can benefit from the tax relief provided by section 2202 of the Cares such as the exemption of the early distribution penalty or the spread of taxation over 3 years.
Please read this IRS document for more information.
In TurboTax, you can indicate in the interview for form 1099-R that I took out this money because of a qualified disaster (includes COVID-19).
Edited 04/01/2021 | 9:12 AM PST
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