Unemployment, kiddie tax, covid, 8915-E and 2nd stimulus...

[ahydress]

I have 3 children: 23, 19 and 17. All received unemployment compensation due to covid. My 23-year-old is working (not a college student). The 19-year-old is a full time college student, the 17-year-old a senior in HS. We had fed and state deducted from their unemployment checks all along the way. In completing their taxes, I input the 1099-G income, fed and state in the Unemployment section of Wages & Income, but for the later 2 kids, TurboTax "forces" a form 8615. If I uncheck "check if parent elects to report income" on my 19-year-old 8615, her fed due jumps from $149 to $1497. My high-schooler - from due $252 to due $2316. How is that if it's already claimed in their Unemployment section? It's like it's getting taxed twice. It won't let me file it in my return because the income wasn't "only from interest and dividends". PLUS - where is form 8915-E? We had to take early distributions when my wife was laid off to pay down recurring debt due to covid. AND we never got the second stimulus. Help!

[AmeliesUncle]

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@ahydress wrote:

TurboTax "forces" a form 8615. If I uncheck "check if parent elects to report income" on my 19-year-old 8615, her fed due jumps from $149 to $1497. My high-schooler - from due $252 to due $2316. How is that if it's already claimed in their Unemployment section? It's like it's getting taxed twice. 

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I suspect it is doing that because it was NOT originally using the "Kiddie Tax" for your children on Form 8615.  The Kiddie Tax basically is applying YOUR tax rate (which is likely higher than your childrens' tax rate) to your children's Unemployment.  That is why you see the change.

For your question about 8915-E, I don't know, so maybe someone else can answer that.  It is quite possible it is not fully incorporated into the software yet.  Also, from what I understand, it can not be directly e-filed.  And because TurboTax does not allow attaching PDFs, you may need to file by mail (or go to a tax professional).

For the second stimulus check, do you have a question?  There is a section in the program (I think it is near the end) that is supposed to walk you through it.

[ahydress]

Why would it apply MY tax rate to their unemployment compensation? MY tax rate was never applied to their regular employment compensation, so if we had Fed and States taken out of their UI, that's not enough?

I guess for the early distributions (8915-E), I'll have to wait to get my 1099-R's - I'm just working off the numbers on my check receipts, but when they talk about "ratably over 3 years", if I took a 15K early distribution (1099-R box 1 - due to covid) and had them deduct 4K for fed taxes as a precaution (box 4), how much can my taxable income for that 15K be for this year (box 2A - I'll gladly defer 1/3 each of the next 2 years).

I saw no section in the program to handle not receiving my second stimulus. In fact, all the help currently in the program is extremely vague. It all talks of forms, etc, but nothing seems to be there yet. Odd since there was plenty of time last year to get it in there. (maybe an update?)

[ahydress]

Quick follow up...

We took a couple early distributions. We lost recurring income due to covid, so we took the early distributions to pay down recurring debt to compensate for the lost wages. (overall, our income looks higher, but it was all to manage debt since we couldn't predict the future) While I specifically noted covid on the distribution applications (haven't received the 1099-Rs yet), the payment stubs list the entire amount as "taxable". BUT the cares act says I can report the distributions ratably over the next 3 years, so does that mean a 15K distribution has a taxable income of 5K for the next 3 years (and I still report the entire amount I had deducted for taxes this year?)? What if the 1099-R I get doesn't say that? Can I get the company to correct that or will the IRS (haha) just be understanding about that for 2020 since this is a once-in-100-year thing?

[LenaH · Accepted solution]

No, you do not have to get your 1099-R's corrected. If you needed to take money out of your retirement plan, keep in mind that the 10% early withdrawal penalty may be waived on up to $100,000 of retirement funds withdrawn if you are a qualified individual impacted by coronavirus.

You are a qualified individual if:

• You, your spouse, or dependent are diagnosed with COVID-19
• You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off
• You had hours reduced due to coronavirus
• You are unable to work due to your child care closing or reducing hours

Even if the 1099-R's state the distribution was made under code 1, Early distribution, no known exception, or code 2, Early distribution, no known exception, you will be able to report the income correctly on your tax return. You would do this by using the number 12 exception on Form 5329. This exception is classified as other, which includes Covid-19 related distributions.

When you receive your 1099-R's, TurboTax will allow you to classify your distribution with an exception code. The distributions are income over a three-year period. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. You also have the option of including the entire distribution in your income for 2020. 

@ahydress

[ahydress]

I don't see any of this in TurboTax just yet - are these changes to the program yet to come?

Any search within TurboTax for form 5329 results in stuff that has nothing to do with 5329. The 5329.pdf I see on the IRS site has no option 12....

Guess I'll wait for updates? (but thanks for the detailed answer - I feel like I'm getting there...)

Also - if I never got the second stimulus, where is the 8915-E in TurboTax? I don't see how that's populated.

[macuser_22]

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@ahydress wrote:

I don't see any of this in TurboTax just yet - are these changes to the program yet to come?

Any search within TurboTax for form 5329 results in stuff that has nothing to do with 5329. The 5329.pdf I see on the IRS site has no option 12....

Guess I'll wait for updates? (but thanks for the detailed answer - I feel like I'm getting there...)

Also - if I never got the second stimulus, where is the 8915-E in TurboTax? I don't see how that's populated.

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The 8915-E form does not even exist yet.

CARES Act retirement plan COVID-19 related distributions can be paid back over 3 years or the tax spread over 3 years.

That is reported on a new 8915-E form that is not yet available and there is no estimated release date since the form is still in the draft state at the IRS. There is no telling how long it will take the IRS to make the electronic form available. Typical it takes the IRS 2-4 weeks to release the electronic form specifications after the paper version is released. e-file providers must program from the electronic specifications.

The draft paper form is here:

https://www.irs.gov/pub/irs-dft/f8915e--dft.pdf
https://www.irs.gov/pub/irs-dft/i8915e--dft.pdf

Also to see if you qualify for a COVID-19 related distribution see:
https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

Quote:
Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?

A3. You are a qualified individual if –

You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;

Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.
End quote

[ahydress]

So I just got my first of a couple 1099-Rs. 

Took distributions to pay recurring debt down do to loss of wages due to covid.

Box 1 = 15K, box 2a = 15K, box 4 = 4500, box 7 =7 "normal distributions". When TurboTax publishes 8915-E, will there be some sort of programatic connection between its 1099-R and it to allow me to report my early distributions "ratably over the next 3 years"? 

And will there be a form programmatically connected to "walk me through everything" for those not receiving a 2nd stimulus (what will that form be if it exists now and how to populate)? We received the first stimulus quickly and with no issues (auto-deposited).

In my above example, if I distribute the 15K over 3 years, what of the 4500 in taxes - do I declare that just this year or spread that over 3 as well? We have 2 dependent kids (17 and 19/college student) - both received UI - both taxed fed and state per check and now, surprise! - have to pay a pretty steep kiddie tax on top of that so by deferring some of ours, we can pay their kiddie tax and have a little left over this year to help us get out of covid.

[macuser_22]

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@ahydress wrote:

So I just got my first of a couple 1099-Rs. 

Took distributions to pay recurring debt down do to loss of wages due to covid.

Box 1 = 15K, box 2a = 15K, box 4 = 4500, box 7 =7 "normal distributions". When TurboTax publishes 8915-E, will there be some sort of programatic connection between its 1099-R and it to allow me to report my early distributions "ratably over the next 3 years"? 

Yes, that is what the 8915-E is for.  We have no idea what the TurboTax interview will look like since it does not exist yet.    Any tax withheld in 2020 will be applied to the 2020 tax return and add to your refund if too much withheld.

We have no idea when this will be in TurboTax because nobody (other then the IRS) knows when the IRS will release the form.

[bruce32]

so will turbotax have form 8915-e online in the application,  or will we have to use a separate attached PDF when filing includes our CARES Act qualified withdrawal ?   And what happened to the option of repaying the withdrawal within two years tax free?  thanks.    

[macuser_22]

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@bruce32 wrote:

so will turbotax have form 8915-e online in the application,  or will we have to use a separate attached PDF when filing includes our CARES Act qualified withdrawal ?   And what happened to the option of repaying the withdrawal within two years tax free?  thanks.    

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Th option  to repay it will be in the 8915-E form when  it is available.   TurboTax e-file options are unknown at this time.

[ahydress]

It's not like they haven't had a year to figure this out.... 🙂 

[LinaJ2020]

The issue has been submitted and is currently under investigation.  Please click on the following link and sign up for an email notification when it's fixed.  

Form 8915-E

Thank You for your patience

If you are under age 59 1/2, the distribution from the retirement plans and IRAs is considered as an early withdrawal.  Generally, you will pay both regular tax plus an additional 10% penalty of your entire distribution unless you met certain criteria.  Due to the CARES Act, if your retirement distribution is related the Covid-19, you will not be liable for this additional penalty.  You will still pay the normal taxes like your wages and income.  For more information from the IRS, click here: Covid Relief.  If your distribution is not related to the Covid, you will need to pay the penalty.  

[rajbull]

I have a similar issue with my daughters (dependent) unemployment taxes. Since it is treated as unearned income for her, it is charging her my tax rate. 

Is this correct? if not how much should be carged?

[ahydress]

I'm not sure how my kids returns are even link to mine other than their names and SSNs, but nothing links my turbotax file with any of my kids. It's my understanding that the tax is tiered regardless of your income. I don't recall the income amounts per tier.