A client took $25K out of her 401k due to covid. She wants to pay it back over 3 yrs

[utah-arizona-taxlady]

She is now working and she wants to pay it back to her 401-k over 3 years.  I am thinking I need the form 8915-C that is not final yet, not the 8915-E that gives her the option to spread out the amount over 3 years and pay taxes on it.  So, does she have to make up the payments for the first part of 2021 or can she start when she files her tax return.  I am so confused.  Can she even do this if it came out of a 401-K?  Do I just need to wait for the 8915-C form to be final?  Any suggestions?  **bleep** COVID.

[qbteachmt]

8915 is a Series of forms used for disaster reporting. Each is a Cycle of three years. the 8915-C is for disasters in 2018, to provide the info into 2019 and 2020 for that same disaster.

You want 8915-E for covid tax year 2020. That will be 8915-E for the three year cycle: 2020, 2021 and 2020. And, there is always the possibility of a disaster in one year not having that person's three year cycle begin until the following year, so really, they are each good for four tax years. Same form "suffix" for the same one disaster cycle filing, in each year it is filed on.

[qbteachmt]

Drake has a nice table:

Form eligibility and data entry varies depending on the year of Drake Tax being used:

• Use Form 8915-A for distributions that were taken for disasters that occurred in 2016.
• Use Form 8915-B for distributions that were taken for disasters that occurred in 2017.  
• Use Form 8915-C for distributions that were taken for disasters that occurred in 2018.     
• Use Form 8915-D for distributions that were taken for disasters that occurred in 2019.     
• Use Form 8915-E for distributions that were taken for disasters that occurred in 2020 (including Coronavirus-related distributions).

[utah-arizona-taxlady]

Awww  understand now.  I have never dealt with any kind of disasters in 30 years.  But I couldn't find anywhere on the form to say or check a box or anything saying she was paying it back over 3 years.  Hence why I thought maybe I needed to go to a different form (my research I guess was sucky).  It just said add it all and pay tax on it or spread it out over 3 years and pay tax on it each year.  Where do I go to say she is going to pay it back?  Or am I assuming if she pays it back she doesn't have to pay taxes on it and she does anyway?  hmmmm

[qbteachmt]

Oh: Yes, a 401(k) is fine. Yes, the repayments will result in Amended tax reporting. Yes, it can start now, which is in 2021, but would be considered within the 3-year "rollover provision."

I like this article:

https://www.thetaxadviser.com/issues/2020/nov/retirement-plan-early-distributions-related-to-coronav...

[utah-arizona-taxlady]

Thank you for this form instructions.  I just read the part about repayment and this is what I gathered from it.  Somebody tell me if I am right or wrong.  I record all payments she makes and they come off the taxable income each year she makes them.  So for 2020 she would have to pay taxes on 1/3rd of it (since no repayments have been made).  Then if she makes payments during 2021 that amount to the $$ of the 1/3rd she will have no taxable distribution that year.  So if she does that each year she can adjust off the taxable 1/3.  But what about 2020?   How can she avoid the taxable income on the first third?  She is just getting back on her feet and doesn't want to pay the taxes on it right now.   

[utah-arizona-taxlady]

Thanks, I have bookmarked this article and will check it out tomorrow.  I have been at my desk over 12 hours now today....I can't think about this anymore right now.....tomorrow is another day.