In 2020 I took out a coronavirus-related distribution (CRD) of ~$20K from my traditional IRA. I counted 100% of the distribution toward my 2020 income (and paid all federal and state tax on it that year), which made financial sense for me because my income was lower than usual in 2020.
Now, I'm interested in repaying some of the CRD. I have a few questions:
- The IRS website says, "...You may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received." Does this mean, if I took out the CRD on July 1, 2020, then I have until July 1, 2023 to repay it? Some of the other language on the site seems to indicate it must be repaid by 2022 (i.e., the "three years" means the 2020, 2021, and 2022 tax years).
I'm curious about the state tax implications of repayment. I paid MA state tax in 2020 on the full amount of the CRD. I assume that if I repay the CRD, I will also be able to file an amended MA state tax return and obtain a refund on the state tax I paid on the CRD. Is this correct?
- Relatedly, I realized that I double-paid state tax on the CRD. Since MA does not allow income tax deductions for IRA contributions, I paid state tax on the initial contributions. Then, I paid state tax again on the distribution. Is this correct? Is there a way to avoid this double-payment?
