CARES distribution payback

[Paxinvrestmentsllc]

I need to take an IRA distribution due to a COVID related job loss.  My understanding is that if I pay it back over 3 years I’m not responsible for the tax?  How do I go about doing the payback?  Just deposit back into my IRA once my job situation stabilizes??

Thank you!

[Bsch4477]

The CARES act provides for qualified individuals receiving CRD, including an option for individuals to elect having their distribution ratably taxed over a 3-year period or taxed in full in the year of the distribution. The IRS guidance includes the following example:

If you receive a $9,000 COVID-19-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.

Distributions will be subject to reporting on the IRS Form 1099-R. The IRS expects to issue additional guidance related to this reporting later this year.

Likewise, individuals receiving a CRD will be required to report the distribution on their individual tax returns, treating the distribution as taxable ratably over a 3-year period or all in the year of the distribution.

[Paxinvrestmentsllc]

I have heard there is an option to REPAY the loan over three years to avoid taking it as taxable income.  Can anyone comment on this?

[Bsch4477]

May I repay a coronavirus-related distribution?

A7. In general, yes, 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. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution.

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.

[Squier1]

Do weekly payroll contributions to employers 401k plan count towards payback on cares act withdrawal?

[dmertz]

No.  New contributions from your pay are not a repayment of a coronavirus-related distribution.

[Squier1]

How about a 401k rollover from a previous employer??thx

[dmertz]

Only if the distribution from the previous employer was itself a coronavirus-related distribution, in which case it would be a repayment of the CRD from that employer, not repayment of a CRD taken from the plan that is receiving the repayment.  A distribution made in 2021 from the previous employer's plan cannot be a CRD and rolling it over would not be repayment of a CRD.

Repayment means that you are putting back the money that you took out an put in your pocket.