CARES Act retirement distribution in turbotax software - penalty-free and paying 1/3rd

[sanket2016]

Hi,

I did a CARES act withdrawal from my Workplace 401K. The CARES act allows me to 1) Avoid paying the 10% early withdrawal penalty. I also want to 2) Pay only 1/3rd of the tax this year and spread the rest out over 2021 and 2022 taxes.

I entered my 1099-R in Turbotax. However, there is no screen asking if this was a CARES act distribution. Where exactly in the software do I need to enter this so that it does the correct calculations? I am at the "These Situations May Lower Your Tax Bill" screen for exceptions, after entering my 1099-R, but there is no CARES act option.

Unfortunately, the software has bugs as the links on this screen (and other screen) that offer further tips/help are not working.

Please help!

[Cynthiad66]

Form 8915 E is now available and should be in your software for the 401K Deduction.  Update your software.  This form will be generated based on the interview questions.  You may need to re-enter the Form 1099R to get to the questions again.

The CARES Act provides tax relief for up to $100,000 of COVID-19 related distributions from eligible retirement plans. So, if you, your spouse, your dependent, or a member of your household was impacted by the coronavirus and you withdrew from your retirement accounts in 2020 before the age of 59 ½, you may not have to pay the 10% early withdrawal penalty (or the 25% additional tax for SIMPLE IRAs).

When you enter your Form 1099-R, we’ll ask you a few questions to determine your eligibility for the exemption, and complete and include Form 8915-E in your return if you qualify.

To qualify for Form 8915-E and to be exempt from the early withdrawal penalty due to COVID-19, a few rules have to be met.

1. You have to be a qualified individual. To qualify, one of these must be true:

• You, your spouse, or your dependent were diagnosed with COVID-19
• You experienced adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19
• You experienced adverse financial consequences as a result of being unable to work due to lack of child care due to COVID-19, or
• You experienced adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to COVID-19

2. The withdrawal had to come from an eligible retirement plan, which could be any of the following:

• A qualified pension, profit-sharing, or stock bonus plan (including a 401(k))
• A qualified annuity plan
• A tax-sheltered annuity contract
• A governmental section 457 deferred compensation plan
• A traditional, SEP, SIMPLE, or Roth IRA

3. The distribution had to have been made in 2020 before December 31, 2020.

There is also a $100,000 distribution limit to the exemption. Any distributions over that amount, may be subject to the additional tax.

When do I have to pay taxes on COVID-19 related distributions?

Can I repay a COVID-19 related distribution?

Form 8915E Used to Report CARES 401 Distribution

[wilder7273]

Help - Additional question on this topic.

We took a distribution, and because we didn't pay anything back in 2020, it appears we need to claim this as income. The message we get in Turbo Tax is:

"Based on the code you entered in box 7 of this 1099-R, you're paying extra tax on this money." (The code that is in box 7 is a "1".)

Is this correct? I was under the impression, we would not be taxed on this money.

Or is it, that we pay tax now, and then if we repay the distribution in three years, we could be reimbursed for the tax we paid?

Advice welcomed!

[JamesG1]

See IRS Coronvirus Relief for Retirement Plans and IRAs.  See Coronavirus-related distributions from workplace retirement plans and IRAs.

Taxes on distributions: 

Coronavirus-related distributions:

• Are included in taxable income
  • Over a three-year period, one-third each year, or
  • If elected, in the year you take the distribution.
• Are not subject to the 10% additional tax on early distributions (including the 25% additional tax on certain SIMPLE IRA distributions) that may otherwise apply to most withdrawals before age 59 ½
• Are not subject to mandatory tax withholding, and
• May be repaid to an IRA or workplace retirement plan within three years, if eligible for tax-free rollover treatment.  

Qualified 2020 Disaster Retirement Plan Distributions are reported on IRS Form 8915-E.

[jedes]

I'm using the online turbotax, I can't find where to enter Form 8915-E for the deferral

[KathrynG3 · Accepted solution]

These details are captured during the Form 1099-R interview. After entering all your details and selecting Done, more questions will follow.

Return to TurboTax and search for 1099-R. Select the Jump to link in the search results. Select the 1099-R that has the early distribution.

• ​​​​​​​Verify that the questions were answered after entering Form 1099-R: 
  • Where is your distribution from?
    • If applicable, select: Pension/IRA distributions received before retirement age / None of the above
  • Do any of these situations apply to you?
    • If applicable, select: I took out this money because of a qualified disaster (includes COVID-19)

For more information, see: What is Form 8915-E Qualified 2020 Disaster Retirement Plan Distributions and Repayments?

@jedes

[sillyleo8]

How do you report the 2nd third of the distribution? Is that not in the software yet for this year? I tried to do it manually and perhaps I will just be owing an incredible amount of taxes but I'm hoping not! 

[AmyC]

 See Federal form availability for expected release dates. Once  IRS released, we work to incorporate them quickly. Form 8915-F will most likely be sometime in March.

@sillyleo8

[fanfare]

@sillyleo8 

you will end up paying income tax on that one third.

But you knew that.

[TJ0000]

Why is the 8915 showing unsupported for eFile?

[DaveF1006]

The form won't be finalized until 03/17 according to here.

[Scvpilot25]

According to that website it says it’s available to print 3/17/22. Where would one print that from? Or will it be mailed out? 

[RobertB4444]

@Scvpilot25 As of now the IRS has still not issued their guidance on how to enter the portion of the 2020 distribution that was taken that is due to be added to your return this year.  Once that guidance is out then TurboTax will update their forms.  When the forms are updated you will be able to print them from your account in TurboTax as well as directly from the IRS website.

[isuckattaxes]

thx for that info....

[ktownmags]

Will this be updated to the software to be able to file electronically? Or will you only be able to file a paper return if you need the 8915 form?