The IRS recently released FAQs on coronavirus-related relief for retirement plans and IRAs (found here: https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers). Specifically, this page provides insight as to the position the IRS may take with respect to the special distribution options, rollover rules for retirement plans, and the permissible loans from certain retirement plans found in the CARES Act.
The FAQs provide details as to what constitutes a coronavirus distribution, and what the requirements are in order to be a qualified individual. The FAQs also detail the loan relief under the CARES Act. Some key questions answered in the FAQs are as follows:
- Coronavirus distributions will generally be included in income ratably over three years, beginning with the year 2020, assuming that 2020 is the year that the distribution is received. A taxpayer may elect to include the entire distribution in gross income for the year of the distribution.
- Coronavirus distributions can be repaid within three years after the date that the distribution was received. If the distribution is repaid, the taxpayer will have the option to file an amended federal income tax return to claim a refund of the tax attributable to the amount of the distribution that was previously included in income. If the three-year repayment period is not yet closed, no income would need to be included for years remaining after the distribution has been repaid.
- Employers have the option to adopt the distribution and loan rules under the CARES Act. An employer can decide to what extent they decide to amend the plan provisions to allow for the coronavirus related distributions. Even if an employer does not treat the distribution as coronavirus-related, a qualified individual is able to treat a distribution that meets the requirements of a coronavirus-related distribution as coronavirus-related on the individual's federal income tax return.
- Retirement plan administrators may rely on an individual’s self-certification that they meet the requirements to be classified as a qualified individual unless the plan administrator knows the individual does not meet the requirements.
- Qualified individuals can designate eligible distributions from retirement plans on Form 1040 when filing their income tax returns. Form 8915-E (which is expected to be available before the end of 2020) will be used to report the amount of the coronavirus distribution included in income for the year as well as the repayment of these distributions.
- Retirement Plan Administrators will be required to report the coronavirus-related retirement plan distributions on Form 1099-R even if the repayment takes place in the same year. The IRS is expected to provide more information on how to report these distributions at a later time.
If you have any questions about whether any of the provisions in the CARES Act apply to you, or any questions regarding the recently released FAQs, please contact your HBK Tax advisor.