My spouse took a small IRA distribution (not early, she was 59 1/2) in 2020 ($5000). She lost her job due to covid. The distribution can be classified as a Covid related distribution and thus special tax treatment (spreading the income out over 3 years if you would like to do this). In Jan 2021, she decided she could repay $4000 back to the IRA, allowed by the CARES Act and she did this. So, she has a repayment to the IRA and a distribution of $1000. I use Turbotax (TT) premier, desktop. So the 1099r for $5000 is straight forward in TT. But in addition to entering the transaction in TT for the 1099r, is the $4000 then also treated as a contribution where we would get a deduction? The only thing I can find on the IRS site is treat a repayment as a contribution.
The amount that you repaid is considered as a rollover to the same account and is not taxed.
Enter your form 1099-R normally. After entering your form 1099-R, click Continue until you reach the screen Did [name] repay any of this distribution?. Check the radio button which corresponds to your situation then click Continue and follow the interview. Enter the amount repaid as a rollover and it will be excluded from taxation.
You will still have the credit for taxes withheld (if any) shown on your form 1099-R.
No, a repayment is not a contribution.
When you indicate to TurboTax that the distribution was a Coronavirus-Related Distribution, TurboTax will eventually ask for you to enter the amount paid back. TurboTax will include that repayment on Form 8915-E. If the choice was to spread the income equally over 3 years, the repayment will eliminate any of this from being taxable on the 2020 and 2021 tax returns and will leave only $1,000 taxable on the 2022 tax return (unless repaid by the due date of the 2022 tax return which would eliminate the remaining $1,000 from being taxable on the 2022 tax return). If the choice was to include the entire amount on the 2020 tax return, $1,000 will remain taxable on the $2021 tax return (which could still be paid back within 3 years, requiring amending the 2020 tax return).