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rpatel133
Returning Member

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

TurboTax makes my federal tax due go up so high, even if I plan to pay within in 3 years. How can I opted out of this so it does not charge me for my taxes for withdrawal of 401k.

13 Replies
macuser_22
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?


@rpatel133 wrote:
TurboTax makes my federal tax due go up so high, even if I plan to pay back in 3 years. How can I opted out of this so it does not charge me for my taxes for withdrawal of 401k.

If you elect to pay over 3 years the 1/3 of it is taxed in 2020.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
rpatel133
Returning Member

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

Sorry, I meant I plan to pay it within 3 years. 

macuser_22
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

You can repay anytime you want, but the tax for 2020 will be 1/3 (or 100%) of the total depending if you elected to pay all the tax in  2020 or spread it over 3 years.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
rpatel133
Returning Member

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

I had the impression you can repay the amount you withdrew with no tax penalty as long as you return all of it within 3 years. That’s what all these 401k websites say for Covid hardship. 

fanfare
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

that is true but you must amend to get back the tax that you  paid in 2020 and possibly 2021 due to not paying it back yet..

fanfare
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

if the tax is too high you must pay back some , up to one third, before the due date of your 2020 return including extensions.

macuser_22
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?


@rpatel133 wrote:

I had the impression you can repay the amount you withdrew with no tax penalty as long as you return all of it within 3 years. That’s what all these 401k websites say for Covid hardship. 


The "penalty" is not the tax.    If a COVID related distribution  then the additional 10% penalty for being under age 59 1/2 does not apply but the distribution  is still taxed as ordinary income but that tax can be spread over 3 years.

 

If you return it then it is not taxed.    The interview asks for how much was returned in 2020 and subtracts that from the taxable amount for 2020 - if 1/3 was paid back in  2020 then there is no 2020 tax.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
fanfare
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

@macuser_22 

 I think that's what I said.

 

Turbotax Online calculates the taxable amount for a COVID distribution incorrectly if 

the distribution is over $100,000 whether you do or do not pay some back.

You can try it yourself.

 

dmertz
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

Until you pay it back, the income in includible on your 2020, 2021 and 2022 tax returns and will be taxed.  IF you pay 1/3 back before the filing deadline including extensions, of your 2020 tax return, you will owe no tax on this money for 2020 but you'll still be obligated to report 1/3 on your 2021 tax return and 1/3 on your 2022 tax returns unless you pay those portions back before the due dates of those tax returns.

 

If you wait until 2023 (but still less than 3 years after the distribution) to make the repayment of the entire amount, you'll need to file amended 2020, 2021 and possibly 2022 tax returns to claim a refund of the taxes paid on the repaid amount.

rpatel133
Returning Member

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

So  just to confirm if I pay back 1/3 of my withdrawal before April 15, 2021, I don’t have to pay any taxes for 2020? I think that will be easier than amending in the future to get my tax I paid for the 3 years. 

macuser_22
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?


@rpatel133 wrote:

So  just to confirm if I pay back 1/3 of my withdrawal before April 15, 2021, I don’t have to pay any taxes for 2020? I think that will be easier than amending in the future to get my tax I paid for the 3 years. 


No.  If you paid back 1/3 before Dec 31, 2020 that would offset the 2020 tax.    If nothing was paid back in 2020 then 1/3 will be taxable in 2020.

 

The due date is irrelevant for the CARES act.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Zan569
New Member

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

How do I spread the amount over 3 years?  I entered in the 1099-R form with the full amount.  Do I reduce the amount on it by a third?  I can't find anything that explains how I split it up.  Thanks

macuser_22
Level 15

I withdrew from 401k due to CoVid due to reduced work hrs. I plan to pay back my withdrawal less than 3yr, so I dont have to pay tax but TboT makes me pay tax. Is this glitch?

 

 


@Zan569 wrote:

How do I spread the amount over 3 years?  I entered in the 1099-R form with the full amount.  Do I reduce the amount on it by a third?  I can't find anything that explains how I split it up.  Thanks



If you meet the qualifications for a COVID related distribution then answer YES to the COVID question and the remaining COVID questions.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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