Covid-19 401K Distribution under Cares Act

[AnmarieA]

My client took a distribution from his 401K under the Cares Act which eliminates the penalty. My understanding you have 3 years to repay or 3 years to spread the tax liability from what I read. My taxpayer says his company told him that it is taxed at a lower rate 10% vs his marginal tax rate of 22%. I can not find this anywhere in the legislation except that the 10% penalty is waived if if was COVID related.

Can someone point me to any correspondence that says it is taxed a a different rate. Also if the taxpayer spreads the tax liability over 3 years is it taxed at the rate it is recognized as income? So if tax rates increase in the next 2 years will it be taxed at his current rate or the rates when reported as income?

Lastly, if the taxpayers W-2 income is higher than the prior year does the 401K distribution still qualify as a COVID relief distribution and eliminates the early penalty withdrawal? The taxpayer took it out in the event his was going to be laid off more than he actually was. 

Thanks, Anmarie

[abctax55]

1)  Employer should NOT be giving tax advice

2) The client 'self-certifies' that the distribution qualifies as a COVID needed one.    "I" would make sure the client signs off to that assertion