Relief for Taxpayers Affected by COVID-19 Who Take Distributions or Loans from Retirement Plans

Melissa Clary Business, Payroll, Tax 0 Comments

The CARES Act provides that qualified individuals may treat as corona virus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between Jan. 1 and Dec. 30, 2020. A corona virus-related distribution is not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. In addition, a corona-virus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a corona virus-related distribution to a plan or IRA and undo the tax consequences of the distribution.

In addition, the CARES Act provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms. In particular, plans may suspend loan repayments that are due from March 27 through Dec. 31, 2020, and the dollar limit on loans made between March 27 and Sept. 22, 2020, is raised from $50,000 to $100,000.

As authorized under the CARES Act, Notice 2020-50 expands the definition of who is a qualified individual to take into account additional factors such as reductions in pay, rescissions of job offers, and delayed start dates with respect to an individual, as well as adverse financial consequences to an individual arising from the impact of the COVID-19 corona virus on the individual’s spouse or household member. A qualified individual is anyone who –

• is diagnosed, or whose spouse or dependent is diagnosed, with COVID-19; or
• experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):

being unable to work due to lack of childcare due to COVID-19;
closing or reducing hours of a business that they own or operate due to COVID-19;
having pay or self-employment income reduced due to COVID-19; or
having a job offer rescinded or start date for a job delayed due to COVID-19
being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19

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