We took early withdrawals from a 401K and Simple IRA due to a reduction in hours/pay. How do I indicate this hardship to avoid paying the early withdrawal penalty?

[DaveF1006]

According to irs.gov, the following hardships are covered under a “safe harbor” in IRS regulations. An employee is automatically considered to have an immediate and heavy financial need if the distribution is for any of these:

• Medical care expenses for the employee, the employee’s spouse, dependents or beneficiary.
• Costs directly related to the purchase of an employee’s principal residence (excluding mortgage payments).
• Tuition, related educational fees and room and board expenses for the next 12 months of postsecondary education for the employee or the employee’s spouse, children, dependents or beneficiary.
• Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence.
• Funeral expenses for the employee, the employee’s spouse, children, dependents, or beneficiary.
• Certain expenses to repair damage to the employee’s principal residence.

A reduction in work hours is not a hardship per IRS regulations.

[Jsspam]

That’s not exactly accurate. If your hardship was due to covid related reasons it is covered under the cares act. The form is not yet available on turbo tax 

[GLKingII]

Agreed.  I did the same thing.  My wife was furloughed for months due to Covid and we did a Hardship 401k disbursement under the CARES Act.  I read in another post that the IRS will not have the appropriate CARES Act related forms available until 12 Feb 21.

[tkochert]

When will the program be amended to include indicating distributions from IRA's and 401K due to job loss, furloughed, positive covid19 test per the CARES Act? We need this now. You have had ~6 months since the passage of this legislation to update your software for correct calculations and input.

[CatinaT1]

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.

[tkochert]

I appreciate the answer outlining that the form is not complete by the IRS. However it has a draft form stating the fields that will be required. For myself and countless others that have purchased the software / services from TurboTax, expect the software to already have this integrated so we can get a very close estimate of our actual tax burden. As the name title of Form 8915-E indicates [(Qualified 2020 Disaster Retirement Plan Distributions and Repayments (Use for Coronavirus-Related and Other Qualified 2020 Disaster Distributions)] filers have experienced financial hardship and need to know how to plan to pay their tax burden. At the very least TurboTax should have a question for users as simple as "Did you take a Disaster or Coronavirus-Related Distribution). If this is answered yes, then it would pop up a message stating IRS has not completed form and not incorporated at this time and TurboTax may not be calculating based on this. It would also prevent persons from filing until form is available. Or better yet, when checked calculate what the taxes would be if it was actually true.  

[GLKingII]

When will Turbox Tax be updated with the latest Tax Forms?  According to the link provided previously, https://ttlc.intuit.com/community/forms/help/irs-forms-availability-table-for-turbotax-individual-pe..., the Form 8915-E is NOT listed and when doing a search for the form, only the A-D versions are available.  However, according to the IRS, https://www.irs.gov/pub/irs-pdf/i8915e.pdf, the form IS available and ready for use.

Please add/update this Form to turbo tax ASAP!!!

And yes, I updated TurboTax BEFORE I posted this.  So as of this post, TurboTax is updated.  Showing WinPerRelease 1392.

As per IRS Publication 8915-E PDF:

Qualified individuals.

You are a qualified individual if you are an individual
meeting any of the following criteria.
1. You were diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (referred to collectively in these instructions as coronavirus) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act).
2. Your spouse or dependent (as defined in section 152) was diagnosed with coronavirus by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act).
3. You experienced adverse financial consequences as a result of you, your spouse, or a member of your household (as defined next):
• Being quarantined, being furloughed or laid off, or having work hours reduced due to coronavirus;
• Being unable to work due to lack of childcare due to coronavirus;
• Having to close or reduce the hours of a business you, your spouse, or a member of your household owned or operated due to coronavirus; or
• Having a reduction in pay (or self-employment income) due to coronavirus or having a job offer rescinded or start date for a job delayed due to coronavirus.

[SamS1]

Its coming soon.  Form 8915-E: Qualified 2020 Disaster Retirement Plan Distributions and Repayments, which is used for COVID-related early distributions, will be e-fileable starting 2/24.  The IRS is updating form 5329’s instructions to make it clear that COVID related exceptions cannot use 5329 and should use the new 8915-E.

The pandemic has affected your taxes in many ways. Including reporting in TurboTax the amount of stimulus money you received. Click Here for more information on how the Pandemic affected your 2020  taxes.

[GLKingII]

Well, we are past 2/24, just updated Turbotax, still no 8915-E version.  How soon can we expect TurboTax to get this added to the program?

[SamS1]

It should be ready now.  Make sure your TurboTax Desktop is updated.  You also may need to delete the 1099R and re-enter.  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.  

[GLKingII]

Thank you for the update.

The next question is since this 401k distribution is covered under the CARES act, does Fidelity need to send out a corrected 1099-R?  I didn't see anything that would be different, other than the Reason Code, but National Disaster isn't one of the options listed so I would assume not.

Just want to make sure before hitting the submit button.

[SamS1]

No new corrected 1099R needed.  If indicated the withdraw was due to Covid, you should have seen some screens if the entire distribution was all due to Covid or only partially.  You can also look at the 1099R in Forms view by selecting forms in the upper right hand corner of the screen.  Scroll down the forms then select the 1099R.  Scroll down the 1099R and you will see the selections for the Covid deferral.

[GLKingII]

Awesome, thank you for the update.