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Use Form 8915-E to report, repay COVID-related retirement account distributions

Broken-nest-egg
Have coronavirus money troubles forced you to break into some of your next eggs? COVID-19 legislation made getting to retirement money easier, but you probably will still owe tax on the early withdrawals and must deal with a new form to report your distributions (or paybacks) to the IRS at filing time.

With the holidays here and no additional immediate COVID-19 economic relief payment in sight, some folks likely have or are considering tapping their retirement accounts.

That option was made easier as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27. It provides more favorable tax treatment for withdrawals of up to $100,000 from retirement plans and IRAs, as well as allows in some circumstances for expanded workplace plan loan options, as long as the need for the money is coronavirus-related.

With the pandemic's second surge upon us, more folks are finding they're in coronavirus-related distribution (CRD) territory.

COVID stop-gap funds: My earlier post on tapping your retirement plan to cover COVID costs has more on this financial move, but here are some highlights:

  • When you take money out of a traditional retirement vehicle — typically a tax-deferred IRA or 401(k) or 403(b) workplace plan — before you reach age 59½, you usually face a 10 percent penalty. That fine is waived for 2020 withdrawals.
  • You still, however, will owe tax on any of the money you withdraw. But that tax amount can be paid over three years, beginning with the payout year. If you prefer, you still have the option to pay the tax in full with your tax return filing for the year you got the distribution.
  • If within three years you recontribute the money you withdrew to make ends meet during the pandemic, your distribution will be treated as a rollover. That means you won't owe tax on the repaid retirement funds.

New pandemic withdrawal/pay-back form: Of course, if you do take money from a retirement account to help you make it through COVID-19 financial difficulties, you'll also face some added fling tasks.

Today's Tax Form Tuesday looks at a new form connected to these coronavirus retirement account distributions.

UPDATE, Feb. 18, 2021: It is Form 8915-E, which allows you to spread out the tax owed on these retirement payouts. Note that this form has now been finalized, as have its instructions. Download it or update your tax software.

The two-page form still is just a draft, hence the notation on the excerpt below. But it, as well as the draft instructions, give us an idea of what the Internal Revenue Service will want from taxpayers in this situation at filing time.

Form 8915-E COVID-19 retirement plan distribution


One thing to note when it comes to filing your first 8915-E is how you want to pay the tax due on your retirement plan distribution.

As discussed in the highlights bullet points, you can choose to either spread the income ratably over three years or report it all in year one. Whatever tax payment method you choose on your initial tax filing, you're stuck with it. You cannot change it.

Reporting repayments, too: Also, Form 8915-E is dual purpose. If you are able to pay back any or all of your CRD within three years, you'll use this same form to let the IRS know you put the money back into your retirement plan.

Finally, when you do repay your emergency COVID-19 retirement distribution within the allowable time frame, you'll need to file yet another form.

You can recover the income tax you paid on the distribution by filing an amended tax return. You'll do that by filing Form 1040-X, which was featured earlier this year in an August Tax Form Tuesday post

You also might find these items of interest:

 

Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.

But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.

 

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Comments

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Frank

I took a Covid related 401-k distribution of $100,000, and paid $25,000 in taxes at distribution. Instead of repaying the distribution, I want to include the distribution as income over 3 years. Can I do this through the Form 8915-E, which would then apply $33,000 as income to my 2020, 2021 and 2022 tax returns?

Amy

Does a Covid withdrawal have to be repaid back to the same retirement account withdrew from?
I withdrew from my active employer sponsored 401K but having difficulty repaying to that account. I have an old 401K at a brokerage firm can I roll the covid payback into that plan? Or open a separate IRA for the payback?

Cari

Are there specific forms for repayment of Cares Act withdrawals? My retirement plan will not let me repay the money yet. They have told me they do not have the forms from the IRS.

Lynne

Will the irs hold back stimulus is taxes owed due to a 401 covid withdrawal

Avi Gavade

Hi Kay,
I took withdrawal from 401K Emergency fund and repaid 100% it in March 2021. Do I still owe taxes on withdrawal. I got 1099-R with Box 7 as 1. How I need to show repayment in 2020 tax return?

Julie Kay

The only income I had in 2020 was a withdraw from my retirement account. What form do I file with the IRS?

Kay Bell

Michelle, I checked with several tax preparers. They agree that regardless of the code on the form issued by Fidelity (or any issuer), you are right: you need to file the 8915-E. Below is what they said. I'd share it with your tax preparer and, since you're paying her, try to convince her to fill it out to be filed with your return. If she resists, you might want to consult another preparer. If you qualify, VITA can help at no cost. I hope this helps. Kay


-- Lots of cases where the issuer can’t know what happened to the funds once they’re distributed. That’s why we have options to report it correctly on the tax return. And it’s up to us as good #TaxPros to query our clients to learn important details.


-- The issuer doesn’t need to have the code right, how could they even know? it is up to the preparer to determine if the taxpayer qualifies, and if so fill out the 8915-E to remove the 10% penalty and decide to spread the income pro-rata over 3 years.


-- We've had to change it to a 2 in the program so CA will file correctly. Welcome to 2020 tax season. The issuer wasn't required to ask any questions so how would they know.


-- I filed an 8915E and the distribution code said 1. How was the issuer to know if it was Covid related or not? The rules don't require the issuer to know if the distribution was Covid related. It's the preparer's job to do due diligence to determine if relief is applicable.


-- The issuer doesn’t need to have the code right, how could they even know? it is up to the preparer to determine if the taxpayer qualifies, and if so fill out the 8915-E to remove the 10% penalty and decide to spread the income pro-rata over 3 years.

michelle tidwell

My tax adviser said she wants fidelity to change the IRS code from a 1 (standard 401k withdrawal) to IRS code 2 ( 401kcares/COVID/disaster withdrawal), Fidelity told me it is illegal to change the IRS code- and that the 8915-E form is to be used to distinguish the 401K withdrawal as a disaster withdrawal. She refuses to file the 8915-E form. I dont know what to do in this case, I had to cut my work hours due to no child care/school for my dependent child.

Kay Bell

Michelle, you need to go back to your tax preparer. She's familiar with your situation. Have her explain clearly what she wants and why. Kay

Michelle

My tax advisor will not fill out the 8915-e form because my fidelity statement has a IRS code of 1 so now she’s saying I need to have proof that the withdrawal was covid related. Can I just fill out the 8915-e form myself??

CJL

If in box 7 the code is U, and I am an eligible individual, is the distribution qualified, meaning I won''t get taxed the extra 10%?

Jerry Wade

If I am filing form 8915-e do I also file the 1099-R with the code 1 on my return?

Lea Natale

Hello,
I am filling out my 8915-e.. however; I already paid the federal taxes up-front when I got the money out. I am not seeing where I should put that I already paid. Can you please guide me on how I would put this information? Thank you.

Kay Bell

Mike, sorry, but no. If you took money out of your workplace retirement plan to get through some COVID-created financial difficulties, that amount needs to be repaid from your funds after you get your pay. If you're still making regular contributions, those automatic paycheck amounts are not a repayment of what you took out. They are just continuing additions. Kay

mike

does the monthly 401k contribution i make through my employer count towards repayment ?

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