2020 COVID 19 Cares Act Withdrawal Year 2 Taxes (2021)

[SportyCC]

I took a COVID 19 Cares Act Withdrawal in 2020 and paid taxes on 1/3 of the amount during the 2020 tax season.  2021 is year 2 and I believe I correctly entered the taxable amount as 1/3 of the original distribution.   I don't believe the tax on that 1/3 is being calculated correctly.  TurboTax is taxing the 1/3 amount by more than 50%.  There shouldn't be a penalty.  What am I doing wrong?   (Example: 2020 COVID Withdrawal $100k.  Paid taxes on $33,333 in 2020.  In 2021, $33,333 is counted towards income to pay taxes on.)  I had finished my taxes waiting on TurboTax to add the ability to calculate the tax on the 2020 COVID 401k Withdrawal.  Please help!

[DoninGA]

All of the federal income taxes withheld on the 2020 withdrawal were entered on the 2020 tax return as a tax payment.

The taxes withheld can Not be spread over three years.  Only the distribution can be spread over three years.

The 2nd year of the distribution is entered on your tax return as ordinary income and taxed at your current tax rate along with the other income being reported on the 2021 tax return.

[SportyCC]

Thank you for that explanation.   I understand that better now.  So I should only be paying for the tax associated with 1/3 of the distribution as regular income.  I must have the amount in the wrong place.  Am I reading the question correctly as it looks like the tool is asking for the 1/3 amount (from line 9 of the 2020 form) in 2 places?

[JamesG1]

Depending upon the distribution, you may report the amount in both boxes that report box 9.

As an example, I am reporting Qualified 2020 Disaster Distributions From Retirement Plans (Other than IRAs) in Part II from the 2020 8915-E.and:

Under Qualified 2020 Disaster Distributions From Retirement Plans (Other Than IRAs), I reported:

• $3,000 to the right of 2020 Form 8915E, line 4, column b,
• $1,000 to the right of 2020 Form 8915E, line 9, if you checked the box on that line, enter 0,
• $0 to the right of 2020 Form 8915E, line 10, and
• $1,000 to the right of 2020 Form 8915E, line 9.

I was able to generate an IRS Form 8915-F Qualified Disaster Retirement Plan Distributions and Repayments and report distributions other than IRA's in Part II.

• I did not repay any 2020 Qualified Disaster Distribution in 2021.
• I did not report a disaster distribution in 2017, 2018 or 2019.
• I reported No for the second question Did you take a disaster distribution at any time between 2018 and 2020? after the section Wages & Income and before the section Deductions & Credits.

The intent is for you to see the 1/3 spread over the three years:

• Included on the 2021 Federal 1040 tax return line 5b,
• Not included on the 2021 Federal 1040 tax return line 5a, and
• In Part II of Form 8915-F on lines 12, 13 and 15.