Feedback for 2021 Coronavirus Retirement Distributions

[nazdak]

It appears that when we try to select the coronavirus distribution for distributions taken prior to June 25, 2021, there is an error that coronavirus distributions can only be taken in 2020. However, there was an amendment to that rule:

The Consolidated Appropriations Act of 2021 (CAA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
Expanded Access to Penalty-Free Distributions

Effective for distributions made through June 25, 2021.

Qualified Disaster Distributions. Although the CARES Act provisions regarding “coronavirus-related distributions” (see below) expired on December 30, 2021, the CAA added a similar provision permitting “qualified disaster distributions, that are effective through June 25, 2021.
For purposes of the CAA, a “qualified disaster distribution” is any distribution made from 401(k) plan on or after the first day of the occurrence of a “qualified disaster” prior to June 25, 2021.
To qualify, the individual’s principal place of abode during the incident period must be located in a “qualified disaster area,” and the individual must have sustained an economic loss because of the disaster.
All fifty states and the District of Columbia have been designated as “qualified disaster areas” due to the pandemic, and the pandemic itself meets the statutory definition of “qualified disaster” pursuant to federal law.
The aggregate amount of distributions that may be treated as “qualified disaster distributions” for any tax year generally may not exceed $100,000.
The aggregate amount would seemingly include the amount of any “coronavirus-related distributions” under the CARES Act (see below) received in 2020

Is it possible to update the ProSeries software for 2021 so that the 2021 retirement distributions are not penalized for Covid Distributions?

[rbynaker · Accepted solution]

There are no 2021 qualified COVID distributions.  Kudos for doing a good amount of research on this!  I appreciate that you cited source material.

CAA was a huge beast.  I keep copies of all of the major tax laws from 2021 open in browser tabs and that one was over 2,000 pages long!  Here's where I get my copy from:

https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf

I think what you're referring to is Division EE - Taxpayer Certainty and Disaster Relief Act of 2020; Title III - Disaster Tax Relief (correct me if I'm wrong).

See Section 301 - Definitions, where you will find "(1)(B) COVID-19 EXCEPTION.-Such term shall not
include any area with respect to which such a major disaster has been so declared only by reason of COVID-19."

In short (too late?), this is for non-COVID disasters (hurricanes, fires, etc.)  There are no COVID penalty exceptions after 12/30/20 (but the client may qualify under a different exception).

Rick

[nazdak]

Rick, thanks for the details.  I can see how the site that I was researching got this confused.  With over 2,000 pages of this bill, it's impossible for the everyday person to understand all of these nuances!  Thanks for the clarification.  I did dig a little deeper with the info you provided, and it looks like, some articles were saying you may have until June 25, 2021 for repayments on your 2020 distribution, but I may be wrong on that as well!

Thanks!

[rbynaker]

Stick around, it's rare for someone to pop in off the Internet who actually attempts to do research first!  Most folks just want free advice.

For the repayments of qualified 2020 COVID distributions you have 3 years so well beyond 6/25/21.  If repaid in full you would end up amending the 2020 return to reduce the income accordingly.  If partially repaid, there are some complex yet comprehensive instructions in the 8915-F instructions (ProSeries is expected to have the form programmed by 3/31/22 but they're definitely slower than just about every other tax software!)

Rick

[qbteachmt]

"here is an error that coronavirus distributions can only be taken in 2020. However, there was an amendment to that rule:"

The $100,000 limit is nice, and applies to Disasters. Covid-19 no longer is a disaster. All disaster declarations have ending dates.