topic Cares ACT early withdrawal - if taxes are deferred over three years, how does it affect AGI in Retirement tax questions

Cares ACT early withdrawal - if taxes are deferred over three years, how does it affect AGI

J_34 — Wed, 30 Sep 2020 21:42:31 GMT

For ease of discussion - with a qualifying early withdrawal of $30,000 this year, and selecting to defer taxes over 3 years ( 20, 21&22), when does the $30k show up as adding to my income. Would only $10k show added to my 2020 gross income and then $10k each year thereafter? Or does the whole $30k get added to my 2020 tax return ( increasing my gross income by $30k in 2020) but the taxes for that increase get split into thirds and spread out between the years.

Also if I select to have 20% withheld from the withdrawal in 2020, wouldn't the whole $6,000 show as withheld for this year? Then since only $10k is applied to 2020, I would get a huge refund for 2020 while still then owing for the next two years?

I cannot find specifics anywhere and might be over thinking this, but wanted to see if anyone might have any further details on this.

Thanks!

Re: Cares ACT early withdrawal - if taxes are deferred over three years, how does it affect AGI

dmertz — Wed, 30 Sep 2020 22:15:55 GMT

If the election is made to spread the CRD over 3 years, one-third of the income will be included in AGI each of the three years, 2020, 20201 and 2022.

Any tax withholding will apply entirely to 2020 only.

Re: Cares ACT early withdrawal - if taxes are deferred over three years, how does it affect AGI

Critter-3 — Wed, 30 Sep 2020 23:41:46 GMT

This has happened in the past ... you will get a 1099-R for the entire 2020 distribution and the withholding next January which you will enter as printed THEN the program will ask you if you want to split the distribution over 3 tax years and the program will complete the correct forms for you. It will show up on the 1040 form on line 4a in full but only the taxable portion will be on 4b. All the withholdings will be reported on the 2020 return only ... then if you will owe taxes in 21 & 22 due to the distribution being spread out then you need to make arrangements to either withhold taxes from some other income, pay in estimated payments OR take some of the excess 2020 refund and apply it to the 2021 return.