How to apply CARES act early withdrawal penalty waver to Ohio PERS refund? Also how can I spread the tax withholding?

[greekstallion]

I'm moving out of state and refunding my Ohio PERS as a result. I have asked OPERS how I can take advantage of the CARES act to space out my 20% tax withdrawal over 3 years and have the 10% penalty for early withdrawal waived?

I asked OPERS directly and they informed me that they are required by law to take 20% out, but told me they do not take out the 10% penalty themselves and to ask the IRS. As far as I can tell though, there is no way to send the IRS a message on their website and their offices are closed.

Does anyone have any advice on when I would pay that 10% penalty on the early withdrawal? And how I could get that waived along with spreading out the 20% tax withdrawal, even if they are taking the 20% out upfront?

Thanks

[macuser_22]

I am not sure what you are asking.    The CARES act allows you to repay a retirement distribution over 3 year if the distribution was a direct result of the Coronavirus and the money was needed because of that.  It does not apply to distributions for other purposes and only applies to Federal law.  Whether a state will do the same thing is up to each state.

[greekstallion]

Ah I guess I was confused then. I'm sorry if my question was a mess, OPERS doesn't really have much explaining this. So the CARES act would not be able to help me cover the penalty for refunding then also? I was under the understanding that I could claim a hardship for situations like not finding work during the pandemic and get any penalties waived. But you're right, that 20% tax withdrawal is most likely state law.

As far as I know I will be hit with a 10% fed penalty on that too, but now I'm even more confused seeing that OPERS told me that they only take the 20% tax withdrawal out of my refund and any penalty. Do I just get hit with a 10% fed penalty at tax filing time? Or am I crazy and there isn't a 10% penalty for pensions like OPERS? I just assumed it fell under other rules for other retirement funds like 401k's, but I really don't know much about these if I'm being honest.

I appreciate the help!

[macuser_22]

The CARES act says:

(A) IN GENERAL.—Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make 1 or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), of the Internal Revenue Code of 1986, as the case may be.

(B) TREATMENT OF REPAYMENTS OF DISTRIBUTIONS FROM ELIGIBLE RETIREMENT PLANS OTHER THAN IRAS.—For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to subparagraph (A) with respect to a coronavirus-related distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the coronavirus-related distribution in an eligible rollover distribution (as defined in section 402(c)(4) of such Code) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.

(4) DEFINITIONS.—For purposes of this subsection—

(A) CORONAVIRUS-RELATED DISTRIBUTION.—Except as provided in paragraph (2), the term “coronavirus-related distribution” means any distribution from an eligible retirement plan made—

(i) on or after January 1, 2020, and before December 31, 2020,

(ii) to an individual—

(I) who is 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,

(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or

(III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary's delegate).

[greekstallion]

Bummer. So if I'm reading this correctly, it doesn't apply to me. You don't happen to know though if I'm right about being hit with a 10% penalty on it at tax time next year? Or do penalties like that not apply to pension programs like OPERS?

I just want to make sure I'm not hit with a surprise 1k+ penalty next year, seeing OPERS says they only deduct the 20% tax from my refund. I can open a second thread here if that would be the proper thing to do in this case.

Thanks!

[macuser_22]

Depends on the code in box 7 on your 1099-R.   If a code 1 then that indicates you are under age 59 1/2 so the 10% penalty applies for Federal tax.  I do not know how Ohio  treats it, but I would assume the same. If a code 2 or code 7 then there is no penalty.