Reporting Coronavirus-Related Distributions and Repayments

Thanks to a provision in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), employers may allow their employees to access their retirement savings to help them cope with the financial impact of the COVID-19 pandemic.

Employee benefits law has changed significantly, even if temporarily, under the CARES Act. Employees may now take a coronavirus-related distribution (CRD) from a defined contribution retirement plan –IRA, 403(b), 457(b) or 401(k) – between January 1 and December 31, 2020, if a plan participant certifies that he or she:

  • Has been diagnosed with COVID-19;
  • Has a spouse or dependent diagnosed with COVID-19;
  • Has suffered adverse financial consequences from being quarantined, furloughed, or laid off;
  • Has had a reduction in work hours or been unable to work due to lack of childcare because of COVID-19;or
  • Is a business owner whose business has been shut down or is operating under reduced hours due to COVID-19.

Eligible employees can withdraw up to $100,000 from their retirement accounts as a CRD. While the distributions are taxable, CRDs qualify for special tax treatment under the CARES Act:

  • CRDs are not subject to the 10% early withdrawal penalty;
  • Distributions will be taxed over a three-year period starting with the year in which a CRD is received unless the employee opts out of this treatment;
  • Tax payments may be made as a one-time lump sum or as a series of payments over three years (2020, 2021, 2022);
  • The recipient may waive tax withholding on a distribution; and
  • If CRDs are repaid via contributions to an eligible plan within three years of the distribution date, the repayments are treated as a tax-free rollover.

Reporting CRDs

The IRS has yet to provide official reporting guidance, but it is anticipated that the reporting process for CRDs will be similar to those already in place for Qualified Disaster Distributions (QDDs) as outlined in IRS Publication 976, Disaster Relief.

The precise reporting protocol for CRD recipients will differ depending on how much and when the CRD is repaid. According to the CRD FAQ section on the IRS website, a CRD should be reported on an individual’s federal income tax return for 2020. The recipient must include the taxable portion of the distribution in income ratably over the three-year period – 2020, 2021, and 2022 – unless he or she elects to include the entire amount in income in 2020.  CRD recipients will use Form 8915-E (which is expected to be available before the end of 2020) to report any repayment of a CRD and to determine the amount of any CRD that is included in income for that tax year.

The payment of a CRD to a qualified individual must be reported by the eligible retirement plan on Form 1099-R. This reporting is required even if the qualified individual repays the CRD in the same year. The IRS expects to provide more information on how to report these distributions later this year.

The experienced, responsive ERISA attorneys at Hall Benefits Law help plan administrators understand what regulations and rulings are relevant to them and how best to apply these rulings in practice. Learn more by calling 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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