2020 401k Cares Act Withdrawal

[kejc4]

If you opted to file your 2020 401k cares act withdrawal over 3 years, do you still have to file state taxes in the original state you lived when the 401k was withdrawn in 2020 if you moved and lived in a new state in the whole 2021 tax year? Or do you just file the second portion of it in the state you lived in in 2021?

[ThomasM125]

That would depend on the state. Some states might not allow you to spread the income over three years, in which case you wouldn't have to report anything to that state after the year you filed. What states are you dealing with?

[kejc4]

We were in North Carolina when we withdrew the 401k until July of 2020. Moved to Mississippi in August of 2020 and lived there all of 2021.

[DaveF1006]

Yes, you will need to report your 401K distribution on your North Carolina tax return  for 2020. This because the state of North Carolina did not conform to the IRS COVID retirement distribution waiver. The distribution is taxable in North Carolina but not in the State of Mississippi.  Turbo Tax will handle the reporting correctly when you file both states.  

[kejc4]

So just to clarify then for our 2021 and 2022 tax returns we will have to report the other two thirds of the 401k withdrawal on a NC tax return? We had an accountant for our 2020 tax return who was the one who advised us to file it over three years, but now I am a little confused when trying to do our taxes on my own. When filing it on our NC tax return, the one third of the 401k withdrawal is all we include as taxable to NC state correct, since the rest of our income was earned while living in MS? Do we report it at all on the MS return?

[DaveF1006]

@kejc4   To research this question, I found this NC DOR article on the State of North Carolina and it's response to COVID actions. There is no mention of being able to defer 2/3 of your 401K withdrawal for COVID reasons. The state tax statute did not conform to the federal mandate.

In my opinion, the entire distribution should have been reported and taxed in 2020 on your North Carolina return. You may need contact your accountant for further action. It is possible you may need to amend your 2020 North Carolina return.