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

[Wolfeman84]

DianeW777,

Thanks for taking the time to address my question.

You're answer makes the most sense on here. The income goes in and the taxes go up, then the repayment goes in and the taxes go (back) down. The tax liability should remain unchanged as a result, as you said, money in money out. That's how I thought it should have flowed originally. It seemed my refund was increased when I put in the 8915 info, but when I take all the 8915 info out it goes back to the amount I though was "increased" so it's not coming from that. I checked everything else and it all appears correct, no errors, so I guess I've just got more coming back to me, that's always a good thing.

To confirm as it relates to the CARES distribution/repayment: no information should be on 1040 lines 5a and 5b, that information should only be on the 8915-E?

Thanks again

J

[GeorgeM777]

Yes, that's correct.  To follow-up on the comments from @DianeW777, if you have no taxable amount to report, there will be no amount on line 5b of Form 1040.  Moreover, pursuant to the instructions for Form 8915-E, there is no entry to make on line 5a of Form 1040.  

@Wolfeman84

[rmeg1]

I am still confused re: the implementation of 2020 CARES 3-way payment/deferment and 2021 TurboTax.  Example:

In 2020, we took a IRA COVID distribution, and selected the 3 payment/deferment.   We filed 8915-E, and on line 9, properly denoted the 1/3 amount.  So this year and next year, we need to add that same deferred amount to those returns.

Here’s what I don’t understand: I used TT 2020 to prepare and file that return.  The first thing TT2021 does is import the 2020 return, so one would assume it would capture the deferment.  However, it is not, and I don’t even see a place to install it.  The worksheet does indeed show the total 2020 IRA distribution amount.

We had another 401K distribution this year.  So am I just supposed to add last year’s deferred amount to the 2021 distributed amount (1040, line 4b)?

Why is TT2021 not picking up the 8915E filed with TT2020 automatically?

[Boga415]

We had to upgrade to get the advice  from the Tax pro . What I remember is that one of the questions ( the first one I think ) it asks for the amount of the distribution I think . If you put 0 there ( even though that is  actually wrong )  that makes it work .  I’d be able to tell because if you get it right your tax is going to change to include the second 1/3 of your distribution. I hope that helps.

[rmeg1]

Correct, it does ask, but for the *2021* distribution.  There is no input field that I can find for the *2020* deferment due amount.  And, as I stated previously, this is in spite of the the Worksheet correctly displaying the 2020 (total) distribution, which TT2021 is obviously capturing from the TT2020 filed-return import.

If I am correct, then this is a serious TT2021 bug: There are going to be a lot of 2020 CARES-deferment filers who are going to underfile their 2021 taxes without paying the proper amount of deferred tax due.

As I also stated before, the only resolution to the problem I can think of is to combine the 2021 distribution with the 2020 deferment amount.  But the 2021 tax rate is higher, so I'll be paying more tax on the deferment than I should be?

[Boga415]

Try taking the 2020 total off of the worksheet.

[parrethd1]

do you pay state tax on a cares act retirement distribution

[Boga415]

We do in North Carolina . Might vary by state . 

[rmeg1]

I found it.  So, hopefully this is correct: On our 1040 Form, line 5a is now showing the total 2020 distribution, and line 5b is displaying the 1/3 CARES amount due for 2021.  The total tax due appears to now be correct.

It's buried, and I can't even begin to describe the path to how I got there.  Again, unless you painstakingly dig, you're going to miss it.  TT is really remiss for not programming this in a straightforward manner in the income Q/A input sequence.  As I said before, I suspect there will be a lot of people who took the CARES deferment, and like I did, assume the importation of a TT2020 tax return with a properly included 8915-E, would automatically bring that info into TT2021.  In my mind, that's a pretty nasty (and potentially expensive tax underpayment) bug, and it does NOT come up in the completed pre-file Review.