In TurboTax online: I took a 401k 100% withdrawal CARES ACT distribution. I am exempt from 10% penalty and want to spread taxes over 3 years. How do I do this?

[hawkism]

I've entered my 1099-R as I got it, with Box 7, code 1 - even though I let my institution know it was a Covid related withdrawal, and also answered YES to the questions in TurboTax re: Covid & being affected by disaster.

[MinhT1]

If the distribution is Covid-related, you will be exempted from the 10% penalty even if box 7 of form 1099-R is coded 1.

However, 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.

[VTCATS]

So do you have to manually go to this section (8915-E) somehow in Turbo Tax when it's available someday, or will there be questions added specifically in the section where I input my 1099 R (which as the prev poster mentioned, SHOULD be exempt from the 10% penalty but was not in the program)?

[CatinaT1]

How this will be entered into TurboTax will depend on the final guidance from the IRS and TurboTax programmers.

You will report this on a Form 8915-E.  The IRS has not yet finalized the Form 8915-E for retirement plan distributions under the CARES act.  So this form cannot be included in the TurboTax program.  You will not be able to proceed until the form is available.

The IRS has not communicated when the form will be finalized for inclusion on the 2020 federal tax return.

We estimate it will be sometime in February 2021 before the form is available.  You can watch this link for the form availability.  Currently, the form is not listed here since there is no estimated date.  Once there is, you will find the form listed with the date available.  

IRS forms availability table for TurboTax individual (personal) tax products

Additionally, the IRS will not start processing returns until February 12, so waiting for this form is not slowing down the processing of your return.

Please sign-up here and we will email you once the form is live.

[VTCATS]

I do understand this.  What I was asking was, once it's available and loaded into Turbo Tax, will the questions to guide us (whatever they end up being) be part of that portion, or will we have to find that form in Turbo Tax and manually fill out?

My hope (assumption) would be if I go back to what' been entered in the 1099R, it will ask questions related to Form 8915-E

[CatinaT1]

I would assume that as well, but how they program TurboTax and where is is located within TurboTax will depend on the IRS final guidance and the TurboTax Programmers.  At this point we can only guess.

[VTCATS]

Thank-you

[VTCATS]

I understand 8915-E is AVAILABLE in Turbo Tax online premier version.  But I downloaded updates to my store purchased Deluxe version and this is still not available.  Any idea when it will be available with Turbo Tax?

[Irene2805]

The TurboTax update with Form 8915-E for CD/Download should be available later today.

In TurboTax CD/Download, you will be prompted to download any updates available when you open the program.  You can also update the program while you have it open by following these steps:

1. Click on the Online link in the black bar at the top of the page.
2. Click on Check for Updates.
3. TurboTax will download and install any updates available.  If there aren't any updates, you will receive the message "Your software is up to date."

Once the update is released and installed, go back to your federal return and go through the screens for your 1099-R.   The program will remove the early withdrawal penalty for early retirement plan distributions and address other COVID-19 issues.

[VTCATS]

Just to confirm something.  The 3 year question is pertaining to spreading out the income withdrawn over 3 years, but NOT, spreading out the withholdings I had, over 3 years.  In this scenario, 401K income withdrawn will be divided over 3 years, but withholdings will all be applied the first year.  Is that correct?

If so, obviously I'll have to plan for an approx extra withholdings or tax paid at some point in year 2 and 3.

[SamS1]

That is correct.  You can apply a portion of your 2020 refund to the 2021 tax year in TurboTax.  That would push the excess withholding from the 2020 1/3  to 2021 tax return to cover the 2021 1/3 and do the same for 2022.  The 8915-E will be used for penalty relief from early retirement plan distributions and include the option to spread the distribution income over 3 years.  This may be a good option if the distribution is pushing you into a higher marginal tax bracket.  You may end up paying less tax if you spread the distribution over the 3 years.

To apply of portion on your 2020 tax overpayment to your 2021 taxes:

1. Open (continue) your return, if you don't already have it open.
2. Inside your return, search for this exact phrase: apply federal refund to next year and then select the Jump to link in the search results.
3. Follow the instructions on the Apply Refund to 2021 Taxes screen.