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armondf1
Returning Member

Determining if job loss is due to COVID?

The IRS criteria for COVID disaster declaration includes loss of job due to COVID, but how is that determined?  Obviously there are a lot of factors involved since not all businesses of the same type chose the same response (yet all were impacted the same by COVID).  In my case the company indicates that business conditions drove the layoffs, and cornavirus / COVID is mentioned in the quarterly results statement (along with additional factors).  Is there a way get an IRS determination prior to being audited?  I am sure that just my assessment is would not sufficient in an audit.  There are several 'complicating factors' as the company does have suppliers in Wuhan, is in an industry historically impacted by (and thus quickly reacts to) global health issues, and the job loss was in January 2020.  This answer drives the ability to use 8915-E due to the IRA withdrawals due to the job loss.

3 Replies
ColeenD3
Expert Alumni

Determining if job loss is due to COVID?

The IRS rules are straightforward. Without second guessing yourself, ask yourself, "Did I lose my job because of COVID".

 

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
  • You had work hours reduced to COVID-19
  • You’re unable to work due to child care closure or hour reduction.

Your lack of a job in 2020 will demonstrate that you were affected.

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armondf1
Returning Member

Determining if job loss is due to COVID?

If only it were only written as you have it, but you left the key phrase “due to COVID” off of the second bullet.  I suffered adverse financial consequences as a result of being laid off, but I don’t know what the decision makers knew, when they knew it, nor on what they based their decision.  Given three similar businesses in the same block, the first was losing money and was about to announce a permanent closing (regardless of COVID), the second very profitable and having a long history with the community chooses to keep the employees working, while the third marginally profitable elects to lay off employees.  All experienced COVID, but other factors were the cause of the layoffs, as clearly they could have chosen to keep the employees working.  An IRS audit of the failing business and their unpaid taxes will show that the lay offs were not “due to COVID” and any employee claiming so is subject to penalties and interest (even though they didn’t ‘know’ and had wrongfully assume that their layoff was due to COVID).  Some clear examples of “due to COVID” are bars which were closed by regulation.  However, many other businesses could have gone virtual or altered their business model to align with restrictions, but instead chose to layoff employees due to other factors (e.g., profitability), not due to COVID.

macuser_22
Level 15

Determining if job loss is due to COVID?


@armondf1 wrote:

If only it were only written as you have it, but you left the key phrase “due to COVID” off of the second bullet.  I suffered adverse financial consequences as a result of being laid off, but I don’t know what the decision makers knew, when they knew it, nor on what they based their decision.  Given three similar businesses in the same block, the first was losing money and was about to announce a permanent closing (regardless of COVID), the second very profitable and having a long history with the community chooses to keep the employees working, while the third marginally profitable elects to lay off employees.  All experienced COVID, but other factors were the cause of the layoffs, as clearly they could have chosen to keep the employees working.  An IRS audit of the failing business and their unpaid taxes will show that the lay offs were not “due to COVID” and any employee claiming so is subject to penalties and interest (even though they didn’t ‘know’ and had wrongfully assume that their layoff was due to COVID).  Some clear examples of “due to COVID” are bars which were closed by regulation.  However, many other businesses could have gone virtual or altered their business model to align with restrictions, but instead chose to layoff employees due to other factors (e.g., profitability), not due to COVID.


Here are the IRS rules:

 

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?

A3. You are a qualified individual if –

  • You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
  • Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
  • You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
  • You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
  • 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.

Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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