1099-r 3-year tax payment for distribution of early retirement due to covid. (CARES)

[COMPLEXEYEDEA]

Hey everyone, I have question regarding paying tax due on early distribution of retirement. Person is eligible to withdrawal funds under CARES act and waive penalty of additional 10%. My question becomes the person can pay tax due over 3 years, how should I report this exactly on pro series. Ex: if amount is 21,000 do I divide this by 3 and just report 7k each year. If that's the case, which I'm assuming it is, how does federal tax withheld work? if they had 2100 fed tax withheld is that divided by 3 and applied each year also or will this be entirely added to 2020 tax paid? Same for state distribution and tax withheld?

[IRonMaN · Accepted solution]

You need form 8915E but you have to wait another week before it is ready to go.

[qbteachmt]

Yes for the taxable Amount and No for the Tax paid in.

The Tax simply is paid in for that tax year. If any amount isn't applied to 2020, you can opt to have it applied to 2021. It's just Withholding, now.

[garytg]

Follow-up question.

I have 3 boxes.

Box 1 - Gross distribution  ($38k)

Box 2a - Taxable amount  ($38k)

Box 4 - Federal income tax withheld (I paid the 10% penalty upfront)

If I decide to use it on my 20, 21, and 22 tax returns, how exactly do I use it?

Box 1 - $12,668

Box 2a -  The full 38K or the same as Box 1 over the next 3 years?

Box 4 - The full $3,800 I paid or divide by 3? 

[qbteachmt]

"Box 4 - Federal income tax withheld (I paid the 10% penalty upfront)"

No; you prepared to need to pay some taxes on this distribution for how it applies to your entire 2020 tax year. What you paid is the same as an Estimated payment or a Withholding payment. You paid in advance of something yet to be determined.

There is a required withholding on distributions in some situations, anyway. It still isn't your Tax.

"If I decide to use it on my 20, 21, and 22 tax returns, how exactly do I use it?"

You are not "using" it across years. It is paid into the IRS and will be applied to what you owe for 2020 from the 1040. Not for any one thing only.

If you qualify and if that distribution qualifies, you can treat it as a covid-related disaster distribution. The treatment for Disaster means the taxable Income can be split across three years of tax returns. That spreads the impact of this additional income across three years of tax filings. But, for instance, if 2020 was a low income year, and you know 2021 and 2022 resume a much higher financial picture, you might not want to spread it out at all.

And if it qualifies as disaster related, there is no 10% penalty on that distribution.

Something tells me you are lost on the internet and trying to do you own taxes. This is where Tax Preparers using ProSeries programs would be posting their questions. Are you using ProSeries to prepare a client's tax return?

[Accountant-Man]

Enter 100% of everything on 1099R. Check boxes on the 1099R to use the CARES Act and the income gets spread over 3 years on the 8915E.

100% of the federal tax withheld is used for 2020. If TP owes for 2021 and 2022, he/she/they need to pay estimates or increase withholdings.

Only the income is spread over 3 years.

[simensonka]

How exactly are the amounts entered on that form?  It is very complicated and I am getting a formula that only taxes part of the 1/3 for 2021.  

[sjrcpa]

Since the form is not available yet no one knows.

Did the client repay some of it?

[qbteachmt]

"How exactly are the amounts entered on that form? It is very complicated and I am getting a formula that only taxes part of the 1/3 for 2021."

Having only 1/3 of the income reported for taxes in 2021 is exactly what you would expect, if the client took a distribution in 2020 and deferred the reporting for taxes over the allowable three years. Three years = 2020, 2021 and 2022.

How are you able to "get" something computing for 2021?

You are waiting for the Form 8915-F to be released by the IRS so that Intuit can update your ProSeries tax program. That is planned for March 17, according to Intuit.