When did you stop making payments on the loan? The CARES Act allows any loan repayment required to be made between March 27, 2020 and December 31, 2020 was permitted to be delayed for one year, so failure to make a payment during this period would not result in a default if the plan permitted suspending repayments. Since a default was declared, apparently the plan did not permit suspension of repayments.
If a default was declared in 2020 and you will be receiving a code L Form 1099-R. Assuming that you are under age 59½, box 7 of the Form 1099-R will include code 1 in addition to the code L. Because you lost your job due to COVID-19, you can declare the deemed distribution to be a Coronavirus-Related Distribution, avoiding the 10% early-distribution penalty and allowing the tax on the deemed distribution to be paid over 3 years by reporting it on the yet-to-be-implemented Form 8915-E.
A deemed distribution does not satisfy the loan. The loan is still part of your 401(k) and you are still responsible for repaying the loan. It will continue to accrue interest until fully repaid. Repayments will become after-tax basis in your 401(k), so you will not owe tax again on the amount that became a deemed distribution when later distributed from the 401(k).
