I took a CARES act 401k withdrawal in 2020. I have not yet filed my 2021 return. I may pay back the withdrawal in the next few weeks. How do I avoid taxes?

[alton987]

It's only giving me the option for 1 year payback or 3 year payback on the tax paid from the CAREs withdrawal.

[DanaB27]

If you know for sure that you will repay the whole amount before the due date of the return then select that you repaid all of the distribution.

On the "Do you want to pay all the tax this year" screen select the "pay entire tax on the COVID distribution in 2020" to avoid having to enter information about this in the next two years (you won't pay any tax since you repaid it all). If you do not select this the amount will be split up in three years and your repayments will be split up into 3 years as well.

You can verify your entry on line 5b on Form 1040, it should be $0 taxable:

1. Click on "Tax Tools" in the left menu
2. Click "Tools"
3. Click "View Tax Summary" in the Tool Center window
4. Click on "Preview my 1040" on the left

[fanfare]

@alton987 

if you really want to do it you should ask for an extension , giving you till Oct 15.

Otherwise check with the custodian for the proper procedure and don't file until it is all done correctly.

it tax was withheld you have to put that back in  also.

[iowadavid]

I have a question regarding how states handle the COVID distribution pay back.  I understand to pay the CARES Act disbursement back you would go into turbotax and select the button that says I paid it all back, and file an amended return.  When I do this the federal dollars at the top indicate that I would get my taxes related to this disbursement back.  My state return, Iowa, does not change.  What do I have to do to get the state to send me the extra taxes I paid back?

[Critter-3]

The states all have their own ways to handle this situation so check with your state for their method.

[fanfare]

when you amend your federal return, your state return is not going to change automatically.

If your federal return changed (ie 1040-X)  you have to amend your state return also, if that change impacts your state tax return. That is a separate action.

Your taxable amount on the distribution went to zero, so I don't see why the amendment  would vary by   state.

This is assuming the taxable amount is the same on both.

That is, you divided by 3.0 on your federal and on your state,

or, you did not spread the distribution on your federal nor on your state.

[iowadavid]

I paid all the tax this year.

For Federal

I would submit a 1099-X which indicates a amended return

I would submit a revised Form 8915-E that indicates I paid it all back

Turbotax automatically updates the federal forms I would need to submit

For the state Iowa state return I would need to go in and manually decrease the income to the IA 1040 Line 9 which is the income pensions/annuities by the same amount.

Do i have this correct?

Thanks

[fanfare]

you can do it manually, or

after your federal is completed and filed,

start amending your state return

and delete the 1099-R that showed the distribution in the first place.

That should have the desired result on your state tax return.

Iowa says:

"An amended Iowa return can be filed electronically."

you can't do that if you do a manual override.

Note: be careful. you only get one amendment e-File.