What you should have done was to apply some of the 2020 refund to the 2021 return so cover the taxes on the 1/3 portion of the distribution to be reported on the 2021 & 2022 returns. If you did not save a part of the excess refund on the 2020 return for future use then sadly you are on the hook for the taxes now. This option to spread the 2020 distribution was unusual and dealing with the tax consequences was not explained well by the program or the IRS for that matter. This is where using a paid tax pro instead of a DIY program would have been helpful. I educated my clients on their options in this matter and guided them to make the best decision for their situation and made sure they had enough put aside so they did not get a surprise tax bill.
