401K Early Withdrtawal penalty/tax and CARES Act

[mgriazahamed]

Hi, Due to the COVID19 Pandemic I lost my job 8 months ago & finding it difficult to find a job. Due to the financial situations, I withdrew the entire amount from the 401K plan, thinking that I'll not have to pay the penalty on it (due to CARES Act) but just the tax. Now, I don't see the Form 8915-E for spreading the tax (incurred due to early withdrawal of 401K amount) over the next three years. I am using TurboTax Deluxe 2020 edition to prepare my taxes this year. Please help me and send me the advise / instructions to my personal email id: [email address removed]. Regards, Riaz [last name removed]

[DawnC · Accepted solution]

The desktop program should be updated this evening; the form is scheduled to be released tomorrow.   Once the program is updated, you will have the ability to apply the tax relief provisions from Form 8915-E to your 401K withdrawal.   Those who qualify (it sounds like you do!) as individuals directly impacted by the pandemic will be able to withdraw up to $100k from their retirement accounts without facing the 10% early withdrawal penalty.   You qualify if:

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

The distribution would be taxed over 2020, 2021, and 2022. You’ll have that time to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions, and if you pay back the amount within that time, you’ll be able to claim a refund on those taxes.    Any amount over 100K will be treated as a normal (early) distribution if you are under the age of 59.5.  

[mgriazahamed]

Thanks for the quick response. However, yet I don't see the 8915-E tax forms in the Turbotax Deluxe 2020 edition software. After updating the same yesterday, I still didnot find the 8915-E tax forms. 

Please update me about the tax form update of Turbotax Deluxe 2020 software. Thanks.

[LinaJ2020]

As of today, the form has been released.  Make sure you update your program.  Click here: 8915-E

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.