Cares Act & Hardship Withdrawl

[covertrain]

If memory serves me correct, Turbo Tax had a built in flow for hardships withdrawals from your retirement for Covid-19.  I also seem to recall it said it would let you spread that tax penalty over 3 years.  This year has nothing about the Cares Act or that carryover at all.  What gives?

[fanfare]

If you did not take a COVID-related early withdrawal in 2020, this does not concern you.

[covertrain]

I did.  I took an early withdrawal.  Paid taxes on that withdrawal last year and it I seem to recall it saying that you would split the tax owed over three years.  However, I don't see where that is continued on this years return.  Turbo tax doesn't continue where it left off last year.

[DavidD66 · Accepted solution]

If had a coronavirus related withdrawal from a retirement plan, and you elected to spread the income and the tax over three years, that election will automatically roll over to 2021.  This will require Form 8915-F, which is not yet available.  Once the form is available, TurboTax will be updated to include it and it will calculate the tax on your 2020 coronavirus withdrawal for 2021.

[covertrain]

Hi David thanks for the response.  I went back and looked at my old return info.  It did say that the original withdrawal will not be counted as income in the following 2 years (after 1st payment).  Do you know if Turbo Tax has accounted for that on the form?

[MarilynG1]

No, the original withdrawal is counted as income in all three years (1/3 each year). 

In 2020, you had the option of reporting all the income and paying the tax in 2020 OR

reporting 1/3 of the income (and paying tax on that amount) in 2020, 1/3 in 2021 and 1/3 in 2022.

If you chose the second option, there is income reported in 2020, 2021 and 2022.

Yes, Form 8915-F will ask about the income reported on your original 1099-R distribution in 2020, in order to calculate the 1/3 for 2021.

[covertrain]

OK, that makes sense because I chose 3 years option.  Thanks for the clarification.  I had assumed they entire thing was made part of my income in year one and they would just split the taxed owed over three years.  I didn't realize that the income applied to you was also split but that makes perfect sense.  Again, thanks for the clarification.

I did notice though that the entire amount of Tax paid from the original withdrawal was all applied in year one.  It would have been nice to be able to apply that over 3 years as well to lessen the tax burden.  Turbo Tax did that automatically.  Oh well at least I know about 8915-F now.  Hopefully it comes soon.