Is there any tax benefits or special reporting i should do since the withdrawal went back into the 401k to repay the loan?
Covid related distributions must be reported on the new 8915-E form.
See below for a link to sign up for an email when the form is ready.
This form is necessary to report COVID related distributions from IRA's and other retirement plans to report the distribution, pay it back over 3 years or spread the tax over 3 years.
A COVID-19 related distribution is reported on a new 8915-E form that is not yet available and there is no estimated release date since the form is still in the draft state at the IRS. There is no telling how long it will take the IRS to make the electronic form available.
The draft paper form 8915-E is here:
https://www.irs.gov/pub/irs-dft/f8915e--dft.pdf
https://www.irs.gov/pub/irs-dft/i8915e--dft.pdf
Also to see if you qualify for a COVID-19 related distribution see:
https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers
See this TurboTax FAQ to sign up for an e-mail when the form is ready.
https://ttlc.intuit.com/community/tax-topics/help/why-am-i-getting-getting-a-10-penalty-on-my-1099-r-when-i-withdrew-fund-during-covid-form-8915-e/01/1842324
Yes. You took a distribution, regardless of how you spent the money. You can see in the other post how to handle the distribution for your best benefit.
Loans and withdrawals from workplace savings plans (such as 401(k)s or 403(b)s) are different ways to take money out of your plan.
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:
The distribution would be taxed over 2020, 2021, and 2022. You’ll have that time to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions, and if you pay back the amount within that time, you’ll be able to claim a refund on those taxes.
Is Turbotax any closer to updating the Covid 401k distribution rules (Cares Act)? Started my taxes this weekend and still do not see an update to explain how this should be handled. Was hoping to complete the tax filing before I forget to do it.
Thanks,
Jack
Here is a link to an IRS site with details of the CARES Act and Retirement.
There have been delays with the release of the form with the IRS.
Form 8915-E: Qualified 2020 Disaster Retirement Plan Distributions and Repayments, which is used for COVID-related early distributions, will be e-fileable starting 2/24.
@jackseiple3 wrote:
Is Turbotax any closer to updating the Covid 401k distribution rules (Cares Act)? Started my taxes this weekend and still do not see an update to explain how this should be handled. Was hoping to complete the tax filing before I forget to do it.
The TurboTax 8915-E should be available on Feb. 24 (pending IRS approval by then).
The IRS just finalized the form on Feb 11. TurboTax must now submit their 8915-E software to the IRS for testing to be sure that both TurboTax and the IRS -file computer are comparable. That process usually takes the IRS 2-3 weeks for approval to release the new for to the public.
See below for a link to sign up for an email when the form is ready.
This form is necessary to report COVID related distributions from IRA's and other retirement plans to report the distribution, pay it back over 3 years or spread the tax over 3 years.
A COVID-19 related distribution is reported on a new 8915-E form.
See this TurboTax FAQ to sign up for an e-mail when the form is ready.
https://ttlc.intuit.com/community/tax-topics/help/why-am-i-getting-getting-a-10-penalty-on-my-1099-r-when-i-withdrew-fund-during-covid-form-8915-e/01/1842324
All, for what is worth, if you started the section of Turbotax covering the 401k early withdrawal section and you wish to update that section with the latest COVID early withdrawal questions and potential reductions on penalties on Turbotax, then you will need to delete the previously created entry for the 401k withdrawal and start a new entry that can incorporate Turbotax's updates to that section. The Turbotax guidance is not clear on this, and this is what worked for me. Hope this helps. I will not be able to respond to any questions.
How do you choose to pay the covid taxes back over 3 years? The help content says you can report the income over three years and gives the example of, if you withdrew $15,000 in 2020 for Covid, you could report 5,000 in income each year for the next 3 years. Does this mean we change the amount we withdrew on our 1099R form to reflect only 1/3 of this income? There are no directions on HOW to report this income over 3 years.
@Mpitchford wrote:
How do you choose to pay the covid taxes back over 3 years? The help content says you can report the income over three years and gives the example of, if you withdrew $15,000 in 2020 for Covid, you could report 5,000 in income each year for the next 3 years. Does this mean we change the amount we withdrew on our 1099R form to reflect only 1/3 of this income? There are no directions on HOW to report this income over 3 years.
No - that is done when you enter the 1099-R and answer the follow up questions about COVID.
Enter a 1099-R here:
Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).
OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.
Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.
[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]Enter a 1099-R here:
Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).
OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.
Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.
[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]
Doing it this way provides no assurance the tax penalty will be split up in 3 years. It actually only specified 2 years as an option to spread out the income but then it reads as if I would pay the entire amount owed this year. How can I make sure it’s spread up over 3 years? And how do I get it spread out 3 years and not 2?
@Mpitchford wrote:
Doing it this way provides no assurance the tax penalty will be split up in 3 years. It actually only specified 2 years as an option to spread out the income but then it reads as if I would pay the entire amount owed this year. How can I make sure it’s spread up over 3 years? And how do I get it spread out 3 years and not 2?
1/3 taxable in 2020 and 2/3's in 2021 on 2022.
Unless you paid part back on 2020 then 2020 tax can be less or zero.
No. The program will do this automatically within the program.
Thank you this was very informative. However when this part is reached in TurboTax it says it will be spread out 2 years not 3. Is this an error?
@Mpitchford wrote:
Thank you this was very informative. However when this part is reached in TurboTax it says it will be spread out 2 years not 3. Is this an error?
The 1st year is 2020, then 2021 and 2022.
It says it is updated but is still trying to charge me 10% after saying I’m approved. Have you had any luck yet?? I had no luck with live help this past weekend.
@Tequilajane wrote:
It says it is updated but is still trying to charge me 10% after saying I’m approved. Have you had any luck yet?? I had no luck with live help this past weekend.
Be sure to delete the 1099-R and re-enter so it gets reset.
I have the exact same question, but it doesn't seem to be clearly answered here or anywhere online: I took a Covid 401K withdrawal and used the bulk of that money to pay off my 401k loan. Does that count as a repayment? Do I have to pay taxes on the amount I put back into my 401k to pay off the loan?
What if you do qualify and already paid taxes when you set up the withdrawal? It’s says I qualify and then tells me to pay 1/3 of the taxes due anyway. I’m going crazy here.
@Tequilajane wrote:
What if you do qualify and already paid taxes when you set up the withdrawal? It’s says I qualify and then tells me to pay 1/3 of the taxes due anyway. I’m going crazy here.
You did not pay the tax - you had tax withheld to pay it on your tax return. The 1099-R box 4 amount gets added to other withholding on line 25 on the 1040 form to offset 2020 taxes. 1/3 of the box 1 amount will be taxable in 2020 on line 5b on the 1040 form. The box 4 withholding might not be enough to offset the tax depending on your other income and tax bracket.
to pay it back is not taxed.
to take out more to pay it off is taxed.
So it doesn't sound like a good move.
Your 401k has not been rebuilt.
You must meet the COVID-related conditions to have avoided the 10% penalty and have your tax burden over three years.
If you still have or will have funds, you have three years to put the distribution back in and rebuild your 401k that way.
The tax will be refunded and your 401k is rebuilt.
basically, doing that accelerates your original loan payment schedule to a three year repayment schedule
I did qualify for waiving the penalty. I’ve called TurboTax Live Help three times since the COVID form has been added. They keep telling me to check back because the software has not been adjusted for this portion yet, although the rest has been added for a few weeks?
on third of the tax is exactly what to expect when you divide by three.
If it is dividing then it is also waiving the 10% early withdrawal penalty.
It seems the COVID-related areas are working this weekend and so I tried to complete the whole process and e-file, but it wouldn't let me. it said I had to go back to my state area and highlighted the number of what was withdrawn under the CARES act, but didn't say what needed to be fixed. It said they were still working on processing covid-related withdrawals and that I can wait or file by mail. I would like to wait but wonder if others ran into this, or if there are thoughts on when e-filing would be possible?
@lab654 wrote:
It seems the COVID-related areas are working this weekend and so I tried to complete the whole process and e-file, but it wouldn't let me. it said I had to go back to my state area and highlighted the number of what was withdrawn under the CARES act, but didn't say what needed to be fixed. It said they were still working on processing covid-related withdrawals and that I can wait or file by mail. I would like to wait but wonder if others ran into this, or if there are thoughts on when e-filing would be possible?
If the state is MI, NY or HI then that is still being worked on.