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

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

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!

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.

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

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

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! 

 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

@sillyleo8 

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

But you knew that.

Why is the 8915 showing unsupported for eFile?

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

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? 

@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.

thx for that info....

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?

@ktownmags Currently the form 8915-F is still in the draft stage with the IRS. There is no release date at this time.

And it is not known at this time if the form will be e-filable or not - that is up to the IRS.

Do we re-use the 1099-R which we filed our 1st 8915-E for the 1st portion of the payment? And would this 1099-R be reused for all 3? Sorry for the rookie question. Thanks..

I'm trying to figure out the same thing...if we use the same 1099 R form from 2020?

You do not use any 1099-R, just the 8915-F form when it is available.

If you do not have a 2021 1099-R it will ask if you have a 2021 1099-R, if you answer no it will ask if you have 1099-R income - say no and it will then ask if you had a disaster distribution from 2017-2020 - say yes.

So I'm curious.  The full amount  I took out of 401k in 2020 was reflected in my income last year.

So did I pay the full amount on it ? 

I did the 3 year split I thought. 

How do I know if I need to do the 8915 form? 

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@Wrusprod  wrote:

So I'm curious.  The full amount  I took out of 401k in 2020 was reflected in my income last year.

So did I pay the full amount on it ? 

I did the 3 year split I thought. 

How do I know if I need to do the 8915 form? 

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Look at your 2020 1040 form line 5a and 5b.  If line 5b is 1/3 the amount in box 1 on your 2020 1099-R form then you elected to spread it over 3 years.

Yep.thats correct! I does reflect it spread over 3 years. Thanks.

So I guess I just need to wait for the form to come out and complete it.? 

Thanks for quick response!

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@Wrusprod  wrote:

Yep.thats correct! I does reflect it spread over 3 years. Thanks.

So I guess I just need to wait for the form to come out and complete it.? 

Thanks for quick response!

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Yes, wait for the new 8915-F form.

You're the best! Thank you!