I took out a withdrawal from my 401K for COVID. I want to split it 3 ways but how would I split the taxes that were taken out?

[DanaB27]

Yes, you can choose to have the distribution taxed over 2020, 2021, and 2022 instead of only in 2020, if you were directly impacted by the pandemic.

But Form 8915-E, that reports the Coronavirus-related relief measures for retirement plan distributions, is not yet finalized by the IRS. TurboTax will update this section after the IRS releases the final version of Form 8915-E and then you can finish your distribution information.

Please sign-up here and TurboTax will email you once the form is live.

Please follow these steps to enter your 1099-R:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R” and you should see the “Your 1099-R Entries” screen
4. Click "edit" and continue until "Tell us if any of these uncommon situations apply" screen
5. Select "I took out this money because of a qualified disaster (includes COVID-19)" (TurboTax will walk you through questions once this section is ready)

Those who qualify as individuals directly impacted by the pandemic will be able to withdraw up to $100k from their retirement accounts without facing the 10% early withdrawal penalty.

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 can choose to have the distribution taxed over 2020, 2021, and 2022 instead of only in 2020. 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.

[cyndee5101]

thanks!  so the form will automatically take the correct amount of taxes out if we split it amongst the 3 years?

[Opus 17]

All the taxes that were withheld during 2020 will be credited on your 2020 tax return. Since that will probably result in an overpayment, you would receive the difference as a refund. Then, for 2021 and 2022, you would need to plan ahead for the taxes that will be owed on the remaining 2/3 of the distribution.

[DanaB27]

Yes, once the Form 8915-E is updated and included in TurboTax, you will be able to select "I took out this money because of a qualified disaster (includes COVID-19)" and then TurboTax will walk you through questions and then automatically calculate the correct amount of taxable income to spread the income over three years. The tax withheld on Form 1099-R will be credited towards 2020.

Please remember if you pay the amount back in any of the 3 years then you can amend your returns and get your taxes paid back.

See the example from the  IRS: 

If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022.

[cyndee5101]

Wow... so you would have to figure out the taxes for the next 2 years.... WOW!  UGH... what a way to figure out your taxes

[cyndee5101]

OK great.. thank you

[Opus 17 · Accepted solution]

You could allow for the tax due by adjusting your withholding at work. If you, and your spouse if married, have regular employee jobs and receive W-2s, you could go to the IRS withholding calculator and calculate a new amount to have withheld from your taxes using your W-4 forms.  Enter the 1/3 of the Covid distribution as additional income not from your job. The withholding calculator will take that into account and tell you how to adjust your W-4 forms so that you have enough tax withheld for both your jobs and the extra income.

[cyndee5101]

oh that would be great... I'm going to do that now... thank you so much

[stasha2]

How do you record year two of the tax liability for the cares 401k withdrawal? Since the liability is split between 3 years I need to record year 2. I've already reported the full withdrawal last year but taxable portion was 1/3 so I don't want to re-report the withdrawal 

[DoninGA]

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@stasha2 wrote:

How do you record year two of the tax liability for the cares 401k withdrawal? Since the liability is split between 3 years I need to record year 2. I've already reported the full withdrawal last year but taxable portion was 1/3 so I don't want to re-report the withdrawal 

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To report the payment for tax year 2021 you will need the new IRS form 8915-F.  The IRS has not yet released the final version of this form or the instructions.  It may not be available until mid-March 2022.  Once it becomes finalized by the IRS then TurboTax will include the form in the TurboTax software in the section for reporting a Form 1099-R.

See this TurboTax support FAQ for the Form 8915-F - https://ttlc.intuit.com/community/retirement-tax-credits-and-deductions/help/what-is-form-8915-e-qua...

[stasha2]

Okay I didn't realize a new form was going to have to be generated for year two. Thank you I'll just sit on my taxes until it is released. 

[stephelswick2]

Is this ever going to be released?  Taxes are due in a little over a month and it still hasn't been released! 

[DoninGA]

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@stephelswick2 wrote:

Is this ever going to be released?  Taxes are due in a little over a month and it still hasn't been released! 

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Form 8915-F, Qualified Disaster Retirement Plan Distributions and Retirements is scheduled to be available in TurboTax on 03/24/2022

Go to this TurboTax website for IRS forms availability - https://care-cdn.prodsupportsite.a.intuit.com/forms-availability/turbotax_fed_online_individual.html

[tahervaziri]

I have taken 401k due to covid related in 2020 and distributed it over a three-year period.(2020,2021,2022)Is it possible to pay everything in 2021 tax income or the 2020 election to recognize income over a three-year period is irrevocable? I do not wait for 2020 since my income will be higher in 2020 and would like to pay the taxes in 2021. Any help would be apperciated.