IRS Offers Tax Relief to Individuals Impacted by COVID-19 for Retirement Plan Distributions and Loans

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Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, qualified individuals can receive favorable tax treatment for distributions from eligible retirement plans, as long as the distributions were taken as a relief measure relating to the impact of the COVID-19 pandemic.

Notice 2020-50 Guidance

The IRS recently released Notice 2020-50, providing additional guidance on COVID-19-related distributions for eligible taxpayers. It offers insight into the following provisions under the CARES Act:

  • Coronavirus-related distributions from eligible retirement plans, including IRAs, are not subject to the 10 percent penalty from January 1 to December 31, 2020.
  • COVID-19-related distributions up to $100,000 are generally included in income over a three-year period instead of just a one-year timeframe.
  • These related distributions will not be included in income to the extent that the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan within a three-year period.
  • The CARES Act provisions increase the allowable plan loan amounts from $50,000 to $100,000 until September 22, 2020.
  • The provisions permit a suspension of payments for plan loans outstanding after March 27 through December 31, 2020 that are made to qualified individuals.

In addition, Notice 2020-50 expanded the definition of a qualified individual to include anyone who:

  • Is diagnosed, or whose spouse or dependent is diagnosed, with COVID-19 as demonstrated by a test approved by the Centers for Disease Control and Prevention (includes tests authorized under the Federal Food, Drug, and Cosmetic Act); 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 quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
    • Being unable to work due to lack of childcare resulting from COVID-19;
    • Closing or reducing hours of a business that an individual owns or operates due to COVID-19;
    • Having pay or self-employment income reduced because of COVID-19; or having a job offer rescinded.

Take Action

Employers can choose to implement these coronavirus-related distribution and loan rules. Even if employers don’t make the changes, qualified individuals can claim the tax benefits of the distributions. Individuals can qualify only by providing a sample certification to receive the favorable tax treatment.

Please contact your Sikich team for additional guidance on how this impacts your business.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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