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A tax client took his 401K retirement funds as a lump sum because he lost his job due to the pandemic. His 1099-R shows the income tax taken out,but it includes the 10% penalty. While preparing his return the 10% penalty was deducted from his refund. How or what do I do to get that penalty taken off. What form do I need to use or how do I go about doing this?
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The 8915 form for the pandemic is not ready. The 1099R will not show a 10% penalty, but will instead show the federal and state taxes withheld. This is separate from the 10% penalty.
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on the 1099R worksheet go to Qualified Disaster Distribution Smart Worksheet check your box for coronavirus distribution. You'll also need to complete Form 5329 and 8915-E (which is not final yet)
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The form 8915-E to indicate this is a qualified disaster distribution is scheduled for 2/25. You also need the form 5329, because you need to show if the tax is being spread over three years or all in this one year.
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