cares act retirement withdraw

[NB2247]

I was furloughed in 2020 and qualified for the cares act retirement withdraw.  I took out $12,000.00 and chose to pay the $1200.00 taxes at the time of withdraw. I'm trying to file my taxes and it's asking me if I want to pay the taxes on my retirement withdraw. Didn't I already do this? I'm confused as to why it's asking me if I want to pay them in full or over the next 3 years. 

[suzanne]

While you may have already paid some or all of the tax at the time of the distribution, in this case Turbo Tax is just getting your verification that you want to either treat the distribution as a one-year event or spread the taxable income bill over three years, as allowed by the CARE Act bill.  So this question isn't about whether you've already paid the taxes, but how how much of your distribution will be included in this year's taxes.  If choose to pay the full tax bill this year, all of the distribution will be included in this year's taxable income (but without the penalty - since the CARES Act exempts you from having to pay a penalty for this early distribution if you qualify).  By entering your distribution info in the Personal Income section of Turbo Tax under Retirement Plans and Social Security: IRA, 401(k), Pension Plans (1099-R), you are providing not only the amount of the distribution but also how much tax was withheld.  What was withheld may or may not be your entire tax due on this distribution.  Turbo Tax will calculate what you owe (or are due back) based on all the info you provide for your entire tax filing, taking into consideration the choice you made on this question and the withholding amount you already paid at the time of distribution.  If you choose to spread the tax bill over three years, expect Turbo Tax to only include 1/3rd of your distribution in this year's taxable income.  Then next year, another 1/3rd will be included in taxable income, and the final 1/3rd in 2 years.  Any withholding you made at the time of distribution will be applied only to this year's tax bill, however.  So if you paid $1,200 in tax withholding, but you decide to spread the tax bill over three years, the $1,200 will be credited to this year's 1/3rd of the distribution (and you will receive a refund or a 'tax-owed' depending on your tax situation).  For the next two years of filings, you will not be credited with a tax withholding, and you will be paying the tax owned (if any) in those two years without consideration of any additional withholding paid. 

[DanaB27]

If you directly impacted by the pandemic will be able to withdraw up to $100k from their retirement accounts without facing the 10% early withdrawal penalty.

Also, you can choose to have the distribution taxed over 2020, 2021, and 2022 instead of only in 2020. If you choose to split it, then each year $4,000 are included in your taxable income.

You qualify if:

• You, your spouse, or your dependent are diagnosed with COVID-19
• You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off or having work hours reduced because of COVID-19
• You’re unable to work due to child care closure or hour reduction because of Covid-19
• You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

You do not have to pay taxes twice. The withheld federal taxes from Form 1099-R will be carried to line 25b and be credited towards any taxes due on your 2020 tax return. Any state taxes withheld will be carried to your state return. When you enter your 1099-R it calculates the correct tax due on the distribution.

You’ll have three years to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions. If you pay back the amount within that time, you’ll be able to claim a refund on those taxes paid when you file an amended tax return. Please see IRS Coronavirus-related relief for retirement plans and IRAs for more details.