1099-R and Cares Act

[maggie8987]

I have a 1099-R and had federal and state taxes withheld from the distribution. This was due to COVID-19 hardships. When Turbotax is asking if I want to pay all of this tax back this year or spread over three years, should I select yes, pay all back this year since I already had it withdrawn? 

[DanaB27]

Yes, if you do not want to spread the distribution over three years because you plan to pay it back this year then you will check the box  next to pay all of the tax this year. The taxes withheld will be applied to your 2020 tax return.

[maggie8987]

So if I've already paid it and had it withdrawn from the distribution in 2020, select pay all in 2020? It will take the taxes already paid as indicated on the 1099 and submitted in Turbo Tax as already paid? I just want to make sure because when I select yes, it doesn't seem like it is acknowledging it as already paid

[DanaB27]

It depends on your tax situation, if you believe to have a higher tax bracket in the next two years, then it would be better to pay all the taxes this year instead of spreading it over three years.

Yes, the taxes withheld are applied towards any taxes due but keep in mind depending on your tax bracket there might be additional tax due on this distribution. You can see the tax on line 25b of Form 1040.

If you select to spread the distribution over 3 years please keep in mind that you might have to adjust your withholdings for next two years.