If a client takes a Covid19 early distribution from her 401k

[Just-Lisa-Now-]

You'll use Form 8915E to get the penalty waived and spread the taxability over 3 years if desired, but the form isn't ready or available yet, last time I looked.

[WHODAT]

Thank you for responding. I am specifically inquiring about the Federal Income Tax that was withheld from her distribution and entered in box 4 of the 1099-R. Are we allowed to split it ratably over 3 years as well? 

[PhoebeRoberts · Accepted solution]

It's all claimed on the 2020 return, but you can always elect to apply some or all of an overpayment to the next year.

[Just-Lisa-Now-]

My daughter took money from her 401K due to Covid, but they didnt take the 20% mandatory withholding like I thought they would...I figured it was because it was a Covid distribution, but apparently not all financial institutions did it that way..

[qbteachmt]

"I am specifically inquiring about the Federal Income Tax that was withheld from her distribution and entered in box 4 of the 1099-R. Are we allowed to split it ratably over 3 years as well?"

it's no different than an Estimated payment or any other amount withheld, now. If she owes that much in taxes, even setting aside the covid withdrawal into future years, then it isn't returned. However, if she later decides to "put it back" per the provisions, she would need to make up the withheld amount or has a taxable distribution. I've seen this happening, where people don't understand that "putting it back" is supposed to be the same gross total, to avoid having a taxable event.

[DannyA]

If you think the client is likely to return the early distribution, you may elect to NOT return it equally within the 3 years.  Consider that as of today, 1/31/21, ProSeries 2021 doesn't have the 1099-R entries ready for form 8915E.  This error currently appears once you remove the red error "X" in the 2020 Coronavirus exclusion box.

"Coronavirus dist - You are unable to file at this time because because we have not had time to update the program for recent tax legislation that Congress has passed for 2020 Qualified disaster or Coronavirus related distributions. This may be to the taxpayer's benefit.."

Sit tight, this looks like it's not updated but should be up and running soon. Keep updating your software.

[qbteachmt]

And now you see why I like to copy the Question Text into my own reply. Once the original asking person removes their question, none of their peers can learn from their topic or even understand the replies.