Hi there.
I took a COVID-19-related distribution from my 401k and am ready to pay it back. To make the numbers simple, let's say I requested the withdrawal of $100k, but the plan administrator withheld $35,200, ultimately giving me $64,800. I am now ready to pay this back.
Questions:
(1) When paying back my 401k plan, would I pay $64,800 or $100k?
(2) Do I need to amend 2020 taxes after repayment, or is form 8915-E sufficient? Amendment seems odd, but is commonly referenced as required in this scenario.
I appreciate any insight here.
1) First of all, you will repay $100,000. The reason being is that the tax withheld has already been reported to the IRS. When you filed your tax return, you were credited with having paid the $35,200 on your tax return for the 2020 tax season as a tax withholding.
2) I found this interesting tidbit of information about the correct procedure in this IRS link . It states that "In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution."
This means that your $100,000 distribution will not be taxed because you repaid the distribution that is reported on the 8915-E.
The link also mentions that you may file an amended return in the prior year when you made the election. it states you may file amended federal income tax returns for 2020 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."
1) you can pay back any amount up to the full amount. deposit with the custodian.
Some custodians are kind enough to add this option to online contribution page.
Otherwise, make sure custodian understands your intent.
An IRA payback would be simpler than a 401K payback.
BUT, you can pay back the 401K COVID withdrawal into an IRA instead if you want.
2) you must amend your return (Form 1040-X) to get your refund.
Thanks for replying.
To be clear, I do want to pay back the "full amount". I just not clear if the full amount in this case is the $100k requested, or the $64,800 I received after withholding. The full amount that ultimately needs to get back into my 401k is the $100k, so do that mean I pay that back, and then request that $35,200 withholding as a refund? I think the confusing part to me is that any funds were withheld at all for this distribution, which means I need to come up with the $35,200 myself, only to request in back via as a refund (through an amendment?)).
@RayW7 @SamS1 @DaveF1006 - Tagging you guys as you all seem knowledgeable on this front.
"I need to come up with the $35,200 myself, only to request in back via as a refund (through an amendment"
That's exactly the situation.
Are you in the 32% bracket or higher?
if not, you paid maybe 24% and were already refunded a chunk of that withholding.
If you put back 65000 you will get back the tax on that which you can then pay back.
you have three years to pay it back.
You'd have to file another amendment No.2.
1) First of all, you will repay $100,000. The reason being is that the tax withheld has already been reported to the IRS. When you filed your tax return, you were credited with having paid the $35,200 on your tax return for the 2020 tax season as a tax withholding.
2) I found this interesting tidbit of information about the correct procedure in this IRS link . It states that "In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution."
This means that your $100,000 distribution will not be taxed because you repaid the distribution that is reported on the 8915-E.
The link also mentions that you may file an amended return in the prior year when you made the election. it states you may file amended federal income tax returns for 2020 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."
@DaveF1006 - That is clarifying, thanks.
@fanfare - that was going to be my follow up - haha. I get the after-tax amount as a loan to myself, but have to come up with an additional 50% of that amount, just to pay it back. Very weird.
it's very weird that you withholding percentage would be so high.
I thought it was typically 20%.
If you took a COVID-related distribution, that is not a loan.
Hi again everyone. I appreciate the correspondence.
Two follow ups:
(1) How exactly do I amend my 2020 return? Which part am I amending?
(2) After filing an amendment, do you know the typically turnaround time for a refund?
Cheers!
Did you elect to spread over 3 Years?
If YES, See Example 1 Page 3 here:
https://www.irs.gov/pub/irs-dft/i8915f--dft.pdf
Good Luck!
Since you haven't done anything yet, you currently don't have anything to enter on 2021 8915-F line 14 (for 401K).
BUT
"Any repayments made before you file your return and by the due date (including extensions) reduce the amount of the distribution included in your income."
The best way to report this is as follows.
[ Edited 01/10/22|07:43 PM PST]
If you divided by 3.0 you owe one third on your 2021 tax return.
If you pay it all back now before you file, you get a credit for that one third on this years 2021 tax return, a credit of one third to be applied to next years tax return and a credit of one third to carry back on your amended 2020 tax return.
If you pay back less than the full amount, do the arithmetic.
if you did not divide by 3.0, you just amend your 2020 tax return.
Hey @DaveF1006 - One last question. I'm not clear on how your advice interplays with Form 8915-F. Assuming I'm amending my 2020 return (the year in which I took the distribution), would I complete Form 8915-F?
As far as amending, I'm going through the steps you provided, and hit a wall at step 9: "Tell us if you moved the money through a rollover or conversion". I'm in my 1099-R, and just see the form. If I walk through the TurboTax wizard on this form, I get to a question that asks, "Did XXX repay any of this distribution?" Is this where I'd change (amend) my answer from "repaid none" to "repaid all"? I toy with this, and that doesn't seem to give me the expected refund.
I appreciate your help, as I've had such trouble tracking down guidance here!
There is absolutely no requirement to amend your 2020 tax return
when you are paying any amount back in 2022 before you file your 2021 tax return,
unless you are paying back more than 2/3rds, e.g. 100%.
For amounts 2/3rds or less,
Put it all on your 2021 tax return.
If you pay back 100%, as you said you wanted to do,
pay back $100,000 before you file your 2021 tax return.
You amend your 2020 tax return ; meanwhile on your 2021 tax return you will enter an amount paid back of 100,000, resulting in zero remaining and zero tax due.
@fanfare That helps, thanks. I do intend to pay back 100% of the borrowed amount. As such, you are saying amending 2020 is required, which I've planned on. Do I also need to complete Form 8915-F?
As for amending, can you provide specific TurboTax instructions? As far as amending, I'm going through the steps Dave provided, and hit a wall at step 9: "Tell us if you moved the money through a rollover or conversion". I'm in my 1099-R, and just see the form. If I walk through the TurboTax wizard on this form, I get to a question that asks, "Did XXX repay any of this distribution?" Is this where I'd change (amend) my answer from "repaid none" to "repaid all"? I toy with this, and that doesn't seem to give me the expected refund.
Final question: Once I complete the amendment, will I get the withheld $35,200 returned to me? This amount was withheld from my original $100k withdrawal, and if I'm paying back the full $100k (and not just the $64,800 I ended up with after withholding), I'd assume this would come back to be as a refund. Is that accurate? I guess the alternative would be for me to pay back $64,800, but the consensus seems to be that I pay back the full $100k.
Thank you so much for guiding me through this chaos!
When you amend the only form you have to attach to your 1040-X is Form 8915-E ( not the revised 1040 ).
It should show on Line 10 an amount paid back of $100,000. That will match your form 5498 sent later.
This results in an "amount subject to tax in 2020" of zero.
You can't expect all your withholding back.
You only get back the tax you paid on $33,333.
The rest of what you paid back 66,667 is applicable to your 2021 tax return,
Form 8915-F Line 14, which you will have to enter yourself,
and which also results in an "amount subject to tax in 2021" of zero. see worksheet 3.
This is super helpful @fanfare - thank you!
Can you clarify, "You can't expect all your withholding back"? I would definitely expect to get these funds back somehow. Here's why:
- 401k has 100k, which I borrow, leaving $0 in my 401k
- There is withholding on that 100k, so I ultimately received $64,800
- Now I'm paying it back, which I have to pay in full at 100k.
- My 401k is now fully repaid to 100k
- However, that original withholding (~$35,200) is still with the IRS, which I've now repaid, so I'd expect it to be refunded to me.
What am I missing?