The CARES Act eliminates required minimum distributions (RMDs) for IRAs and retirement plans in 2020, including for beneficiaries of inherited IRAs and retirement plan accounts. RMDs are also covered under this waiver if you turned 70 1/2 in 2019 and took your first RMD in 2020. To waive your RMD for 2020, you don’t have to have been infected with the coronavirus.
Within 60 days of the distribution, an amount that would have been an RMD in 2020 can generally be rolled over to another workplace retirement plan or IRA. An account holder in a corporate retirement plan or an IRA who got a payment of an amount that would have been an RMD in 2020 before July 2, 2020 might have rolled over the payout before August 31, 2020. Furthermore, Notice 2020-51
Q1. What are the special rules for retirement plans and IRAs in section 2202 of the CARES Act?
A1. In general, section 2202 of the CARES Act expands distribution options and provides favorable tax treatment for up to $100,000 in coronavirus-related distributions from eligible retirement plans (such as section 401(k) and 403(b) plans and IRAs) to qualified individuals, as well as special rollover rules for such distributions. It also raises the maximum amount a qualified individual can borrow from an eligible retirement plan (except an IRA) and allows a plan sponsor to extend the time a qualified individual has to return their plan loans by up to a year. For further information, see the FAQs section below.
Q2. Does the IRS intend to issue guidance on section 2202 of the CARES Act?
A2. The Treasury Department and the Internal Revenue Service are drafting guidance on section 2202 of the CARES Act and plan to provide it soon. 2005-92 IRS Notice
When do I have to pay taxes on coronavirus-related distributions?
- A test approved by the Centers for Disease Control and Prevention diagnoses you with SARS-CoV-2 or coronavirus disease 2019 (COVID-19);
- A test approved by the Centers for Disease Control and Prevention diagnoses your spouse or dependent with SARS-CoV-2 or COVID-19;
- You suffer financial hardship as a result of being quarantined, furloughed or laid off, or having your working hours reduced as a result of SARS-CoV-2 or COVID-19;
- You are experiencing negative financial consequences as a result of being unable to work due to a lack of child care due to SARS-CoV-2 or COVID-19; or you are experiencing negative financial consequences as a result of being unable to work due to a lack of child care due to SARS-CoV-2 or COVID-19; or
- Due to SARS-CoV-2 or COVID-19, you suffer financial losses as a result of closing or lowering the hours of a business you own or operate.
As a result of experiencing unfavorable financial effects, the Treasury Department and the IRS may publish guidelines under section 2202 of the CARES Act that enhances the list of considerations taken into account to decide whether an individual is a qualified individual. The Treasury Department and the Internal Revenue Service have received and are examining public submissions asking for the list of considerations to be enlarged.
Q4. What is a coronavirus-related distribution?
A4. A coronavirus-related payout is one paid from an eligible retirement plan to a qualified individual between January 1, 2020, and December 31, 2020, up to a total of $100,000 from all plans and IRAs.
Q5. Do I have to pay the 10% additional tax on a coronavirus-related distribution from my retirement plan or IRA?
A5. No, the ten percent early distribution tax does not apply to any coronavirus-related distributions.
Q6. When do I have to pay taxes on coronavirus-related distributions?
A6. Distributions are normally ratably included in income over a three-year period, beginning with the year in which they are received. For example, if you receive a $9,000 coronavirus-related dividend in 2020, you will report $3,000 in income on your federal income tax return in each of the following years: 2020, 2021, and 2022. You can, however, include the entire dividend in your income for the year in which it was made.
Q7. May I repay a coronavirus-related distribution?
A7. In general, you may repay all or part of a coronavirus-related distribution to an eligible retirement plan if you do so within three years after receiving the distribution. If you repay a coronavirus-related payout, it will be considered as if it were repaid in a direct trustee-to-trustee transfer, which means you won’t have to pay federal income tax on it.
If, for example, you receive a coronavirus-related distribution in 2020 and choose to include the amount in income over three years (2020, 2021, and 2022), and then repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you may also file amended state income tax returns for 2020 and 2021 to claim a refund
Q8. What plan loan relief is provided under section 2202 of the CARES Act?
A8. Section 2202 of the CARES Act gives eligible retirement plans (not including IRAs) an extra year to repay debts and reduces lending limitations.
- Certain loan repayments may be delayed for one year: If a loan is outstanding on or after March 27, 2020, and any repayment on the loan is due from March 27, 2020, to December 31, 2020, that due date may be extended under the plan for up to one year. Any payments made after the suspension period will be modified to account for the delay as well as any interest that accrued during the suspension period. See section 5.B of Notice 2005-92 for more information.
- The loan limit could be raised: Employers can also enhance the maximum loan amount accessible to qualified persons under the CARES Act. The maximum for plan loans granted to a qualified individual between March 27, 2020, and September 22, 2020, may be increased to the lesser of: (1) $100,000 (minus the individual’s outstanding plan loans), or (2) the individual’s vested benefit under the plan. See section 5.A of Notice 2005-92 for more information.
Q9. Is it optional for employers to adopt the distribution and loan rules of section 2202 of the CARES Act?
A9. Employers have the option of adopting section 2202 of the CARES Act’s distribution and loan guidelines. An employer may choose whether and to what extent to adjust its plan to include coronavirus-related payouts and/or loans that comply with the CARES Act’s section 2202 regulations. As an example, an employer may decide to fund for coronavirus-related distributions while keeping its plan loan provisions and loan payback schedules unchanged. Even if an employer does not treat a payout as coronavirus-related, an eligible individual may report a distribution as coronavirus-related on their federal income tax return provided it fits the conditions. See section 4.A of Notice 2005-92 for more information.
Q10. Does section 2202 of the CARES Act provide additional distribution rights to participants or otherwise change the rules applicable to plan distributions?
A10. A coronavirus-related distribution is treated as meeting the distribution requirements for a section 401(k) plan, section 403(b) plan, or governmental section 457(b) plan under section 2202 of the CARES Act. A section 401(k) plan, for example, may permit a coronavirus-related payout under section 2202 of the CARES Act, even if it occurs before an otherwise permissible distributable event (such as severance from employment, disability, or reaching age 591/2). The CARES Act, on the other hand, makes no changes to the restrictions on when plan distributions from employer-sponsored retirement plans can be made. A pension plan (such as a money purchase pension plan) cannot make a payout before an otherwise permissible distributable event just because the distribution, if made, would qualify as a coronavirus-related dividend. Furthermore, a pension plan may not make a payout on a form that is not a distribution form.
Q11. May an administrator rely on an individual’s certification that the individual is eligible to receive a coronavirus-related distribution?
A11. Unless the administrator has actual knowledge to the contrary, the administrator of an eligible retirement plan may rely on an individual’s certification that the individual meets the conditions to be a qualified individual in determining whether a distribution is a coronavirus-related distribution. Although an administrator may rely on an individual’s certification for making and reporting a distribution, the individual is only allowed to treat the distribution as a coronavirus-related distribution for tax purposes if the individual meets the eligibility conditions.
Q12. Is an eligible retirement plan required to accept repayment of a participant’s coronavirus-related distribution?
In general, qualifying retirement plans are expected to accept repayments of coronavirus-related distributions, which will be recognized as rollover contributions. Eligible retirement plans, on the other hand, are not obligated to accept rollover contributions in most cases. If a plan does not allow rollover contributions, for example, it is not required to amend its rules or procedures in order to accept repayments.
Q13. How do qualified individuals report coronavirus-related distributions?
A13. If you are a qualified individual, you may designate any eligible distribution as a coronavirus-related distribution if the total amount of coronavirus-related distributions you designate does not exceed $100,000. As previously stated, a qualified individual may treat a distribution that fits the criteria for being a coronavirus-related payout as such, regardless of whether the distribution is treated as such by the eligible retirement plan. Your individual federal income tax return for 2020 should include a coronavirus-related dividend. Unless you elect to include the entire amount in income in 2020, you must include the taxable component of the distribution in income ratably over the next three years 2020, 2021, and 2022. You would use Form 8915-E (which is projected to be available by the end of 2020) whether or not you are obligated to file a federal income tax return.
Q14. How do plans and IRAs report coronavirus-related distributions?
A14. An eligible retirement plan must disclose a coronavirus-related dividend to a qualifying individual on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, and Other Financial Instruments. Even if the qualified individual repays the coronavirus-related distribution in the same year, reporting is necessary. Later this year, the IRS hopes to give further instructions on how to report these distributions. Section 3 of Notice 2005-92 is a good place to start.
Q15. Are employees who participated in a business’s qualified retirement plan, then laid off because of COVID-19 and rehired by the end of 2020, treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the plan occurred? (added July 30, 2020)
A15. In most cases, no. Participating employees are generally not treated as having an employer-initiated severance from employment for the purposes of calculating the turnover rate used to help determine whether a partial termination has occurred during an applicable period if they are rehired by the end of that period, subject to the facts and circumstances of each case. For the purposes of assessing whether a partial termination of the retirement plan occurred during the 2020 plan year, participating employees who were fired due to the COVID-19 epidemic and rehired by the end of 2020 would not be considered to have received an employer-initiated severance.
For more information on partial terminations, see Revenue Ruling 2007-43, which covers vesting rules, calculating the turnover rate for employer-initiated severances, the presumption that a turnover rate of at least 20% during an applicable period results in a partial termination, and determining the applicable period.
Why do I see “Need More Information” on the IRS website for my COVID-19 Economic Impact Payment?
Need More Information appears in the Get My Payment section because:
- Your 2020 return has been processed, but we do not have your bank account details, and your payment has not yet been issuedor
- Your third Economic Impact Payment was returned to the IRS because the Post Office was unable to deliver it.
- You can enter a routing and account number for a: to have your payment sent as a direct deposit.
- Debit card with a prepaid balance (must be reloadable; contact the card issuer for information)
Does the COVID-19 stay in your clothes?
Despite the limited evidence we have regarding the coronavirus’s potential to survive on your clothes, there are a few more factors to keep in mind. Experts have discovered that viruses like the coronavirus that causes COVID-19 thrive on smooth, hard surfaces like doorknobs.
Soft, porous surfaces, on the other hand, such as your shirt’s sleeves, actually inhibit the spread of these viruses for two reasons:
- These viruses are more likely to become stuck inside the fibers and weave of porous surfaces such as fabric, making it less likely for the virus to spread to your hand, face, or another surface later.
- When viruses are dried out, they become substantially less infective (possibly non-infectious), and fabrics are more prone to absorb and suck water away from them.
While many news outlets are reporting that coronavirus can survive on shoes, particularly the soles of shoes, keep in mind that the studies in question only looked at the shoes of medical staff caring for COVID-19 positive patients in ICUs and that hospitals are taking extreme measures to prevent the virus from entering or leaving ICUs. The chance of discovering coronavirus on shoes worn by the general public was not investigated in the study.
Will my next COVID-19 Economic Impact Payment (EIP) be sent to the previous card?
No, we will not add funds to an EIP Card that we have previously issued for a payment. You may be mailed a check or an EIP Card if the IRS does not have account information to make you a direct deposit when 2021 payments are issued.
The Treasury Department’s Bureau of the Fiscal Service sponsors EIP cards, which are administered by Money Network Financial, LLC and issued by Treasury’s financial agent, MetaBank, N.A.
Q1. What does Section 209 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), Division EE of the Consolidated Appropriations Act, 2021, provide regarding partial termination of a qualified retirement plan? (added April 27, 2021)
A1. According to Section 209 of the Relief Act, a plan is not treated as having a partial termination (within the meaning of Internal Revenue Code Section 411(d)(3)) during any plan year beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number of active participants covered by the plan on March 13, 2020.
Q2. Who is an “active participant covered by the plan”? (added April 27, 2021)
A2. For the purposes of Section 209 of the Relief Act, when determining the number of active participants covered by a plan on March 13, 2020, and March 31, 2021, a reasonable, good-faith interpretation of the term “active participant covered by the plan,” applied consistently, should be employed.
Q3. How does Section 209 of the Relief Act apply to a plan year if only part of the plan year falls within the period beginning on March 13, 2020, and ending on March 31, 2021? (added April 27, 2021)
A3. If any part of the plan year falls between March 13, 2020, and March 31, 2021, Section 209 of the Relief Act applies to any partial termination determination made for that full plan year.
Because both plan years include a portion of the statutory determination period of March 13, 2020 to March 31, 2021, the 80 percent partial termination test in Section 209 of the Relief Act applies to both the January 1 to December 31, 2020, plan year and the January 1 to December 31, 2021, plan year.
Q4. Is the 80% test applied by identifying the pool of active participants covered by a plan on March 31, 2021, and determining whether at least 80% of those same individuals were active participants covered by the plan on March 13, 2020? (added April 27, 2021)
No, Section 209 of the Relief Act is implemented by counting the number of active plan participants on each of those two dates. On March 31, 2021, the number of active participants covered by a plan comprises all individuals who are active participants covered by the plan on that date, regardless of whether they were active participants covered by the plan on March 13, 2020.
Q5. Does Section 209 of the Relief Act apply solely to reductions in the number of active participants covered by a plan that are related to the COVID-19 national emergency? (added April 27, 2021)
A5. No. Although the COVID-19 national emergency was declared on the first day of the statutory determination period, March 13, 2020, the provision’s terms are not confined to reductions linked to the COVID-19 national emergency.