This section is not yet ready in TurboTax. Please be patient.
The Coronavirus-related relief measures for retirement plan distributions have to be reported on form 8915-E which has not yet been finalized by the IRS. No date has been given by the IRS for the finalization of this document.
TurboTax will update this section after the IRS releases the final version of form 8915-E and its instructions. Please revisit this section at a later date.
It depends. You have misinterpreted the provision. The IRS will give you an option to pay the tax on the distribution over a three-year period. You will pay 1/3 this year, 1/3 the next, and 1/3 in the final third year. Here is how to report.
Note: In the 6th step Turbo Tax asks if you wish to pay ALL the tax this year. Make sure that box is not checked.
What if I want to repay half this year and half next year? How is the tax handled?
No. You do not have that option unfortunately. You must either take the three-year option or pay the entire amount this year.
Can I repay differing amounts in each of the 3 years?
If so, would it be better be to repay more $ in the year which I expect to have a higher or lower income?
Yes, you can pay different amounts, and it would be better to repay more money in the year in which you expect to have a higher income.
@Caseyblue
How is the repayment handled/reported within Turbo Tax ?
Is the reporting different if I make repayment prior to filing as opposed to after ?
@Caseyblue After your enter your 1099-R, and indicate it was a covid-related distribution, TurboTax will ask if you repaid all or part of your distribution. Enter the amount you repaid (screenshot).
The balance of the distribution can be reported over three years. Continue until you get a screen with a checkbox asking 'if you want to pay tax this year' and DON'T check the box (screenshot).
Click this link for more info on 2020 Stimulus Tax Relief.
Is the reporting handled differently if I make repayment prior to filing as opposed to after filing ?
No the reporting is handled the same. Basically, you are being asked if you want to pay now or pay later. if you pay the full income tax on the full distribution this year, you won't need to worry about paying it later. You might want to consider this option if you predict your income may drop over the next 2 years.
instead, you can pay tax and declare 1/3 of the income this year, 1/3 next year, and then the final 1/3 in two years. As I said, pay now or pay later.
Same would also be true if I paid 1/2 this year and 1/2 next ?
you can't choose your tax due.
You must pay the amount calculated on your tax return.
For a covid distribution, you only have the two choices 100% or one third over three years.
If you repaid more that 1/3, ie 1/2 then
1/2 - 1/3 is carried over to next year.
according to my fractions in fourth grade that would be 3/6 minus 2/6 = 1/6 credited to your next tax return.
Not looking to choose the tax due.
Looking to repay more $ in a year with higher income.
What I meant to say, if you repay more than a third,
only a third is credited in the current year.
Therefore, I don't think there is any advantage to do so.
(other than to take the funds out of your hands so you can't spent them elsewhere).
Not sure if that is correct.
DF1006 has seemed to indicate you should repay more $ in a higher income.
You cant reduce the amount includable in income to a negative number. If you have 1/3 of the distribution due the next 2 years, paying more than 1/3 will not give you a deduction on your tax return. It would only decrease the amount you have to pay the following year to cover the last 1/3.
Not looking to reduce to negative number but as DF1006 has seemed to suggest it might be a good idea to repay more $ in one of the 3 years with higher income.
Perhaps repay 50%, 30%, 20% over next 3 years starting with 2020 ?
8915-E Instructions. Page 10.
"Enter on line 18 the amount of any
repayments you made before filing your
2020 return. Do not include any repayments
made later than the due date (including
extensions) for that return nor any
repayments of nontaxable amounts. If you
elected to spread the income over 3 years
and you repaid more than the amount on
line 17, the excess will be carried forward to
your 2021 tax return."
with the tax filing deadline extended, is the repayment period extended also for the first year’s repayment?
Yes, the payment date for the 2020 Tax Return is extended to May 17, 2021.
Expert answer here!! Thankyou for the help - this got my issue all cleared up.
If you decide to not pay it back then the amount distributed will be fully taxable but you can still elect to spread the amount over 3 years.
You’ll have three years to decide if you want to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions. If you pay back the amount within that time (can also be partial repayment), you’ll be able to claim a refund on those taxes paid when you file an amended tax return. Please see IRS Coronavirus-related relief for retirement plans and IRAs for more details.
Example from the IRS:
If 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.