I took out a hardship withdrawal from my 401K from Hurricane Florence but it's not listed as an approved disaster yet. How do I have the penalty waived?

[dmertz · Accepted solution]

You don't, yet.  Until Congress passes a law allowing this to be treated as a qualified disaster distribution, the distribution is subject to an early-distribution penalty.  If Congress passes such a law after you file, you'll be able to amend your 2018 tax return to claim the exemption.  H.R.536 - Hurricane Florence Tax Relief Act is currently in committee.

[jarssica0629]

Thanks!  It did say that I didn't owe any taxes on the money that I took out, but why then did it make my refund go down $3K?

[dmertz]

What is the code in box 7 of the Form 1099-R?

[dmertz]

I have no idea what TurboTax was trying to tell you when it indicated that you didn't owe any taxes on the money.  It may have been referring to not owning any "additional" taxes if you mistakenly reported this as a 2017 Qualified Disaster Distribution.  The distribution is certainly subject to ordinary income tax and should be included on line 4b of Form 1040.

I suggest requesting a filing extension and seeing if Congress acts before the October 15, 2019 extended filing deadline.  Filing now would require you to pay the 10% early-distribution penalty and amend when if and when the law is passed to make this distribution a Qualified Disaster Distribution.

[jarssica0629]

If I went ahead and filed and they made it a qualified disaster, would I be credited or refunded the 10%?

[dmertz]

Yes, this would be refunded upon filing the amended tax return.  If the bill becomes law as currently written, this income will also be able to be spread over 3 tax years should you choose to do so, so you might be able to get back more with the amendment of your 2018 tax return than just the penalty but have to include more in income on your 2019 and 2020 tax returns.

[jarssica0629]

Ok.  Thanks for all the help!