Tax Relief Offered to Retirement Plan Participants Affected by COVID-19
Earlier this year, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided economic relief to millions of Americans who have been affected by the COVID-19 outbreak, including enhanced access to plan distributions and loans for qualifying taxpayers. Determining whether a person is eligible for relief under this law can be difficult, so if you have a retirement plan and have been affected by the COVID-19 pandemic, it is important to contact an experienced Florida tax return preparation attorney who can advise you.
Coronavirus-Related Retirement Plan Distributions
In addition to expanding the categories of individuals who are eligible for retirement distributions and loans, The CARES Act also allows qualified taxpayers to treat distributions from eligible retirement plans, including IRAs, as COVID-19-related distributions for income tax purposes. This allowance applies only to distributions of up to $100,000 that were made from certain types of retirement plans between January 1st and December 30th of this year.
Designating a retirement distribution as being coronavirus-related can have significant repercussions for taxpayers, as these types of payments are not subject to the ten percent additional tax that normally applies to any retirement plan distributions made before a person reaches the age of 59 and one-half years old. Furthermore, COVID-19-related distributions can count towards a person’s income in equal installments over a period of three years, while qualifying taxpayers are also given three years to repay these distributions to a plan and so undo the tax consequences of taking out a payment early. The CARES Act relaxes the rules in other ways for taxpayers when it comes to repayment terms. For instance, plans can suspend repayments due between March 27th and December 31st, while the dollar limit on loans made between March and September of this year has been raised from $50,000 to $100,000.
Qualified Taxpayers
To qualify for retirement plan-related relief during the pandemic, a person must have been diagnosed (or had a spouse or dependent who was diagnosed) with COVID-19. Alternatively, a taxpayer could qualify for relief if he or she has experienced adverse financial consequences because the individual, his or her spouse, or a member of that person’s family:
- Was quarantined, furloughed, laid off, or forced to work less hours due to COVID-19;
- Is unable to work due to a lack of childcare resulting from the pandemic;
- Has been forced to close or reduce the hours of his or her own business because of COVID-19 restrictions;
- Has had pay or self-employment income reduced due to COVID-19; or
- Had a job offer rescinded or a start date delayed.
While employers are allowed to choose whether to implement the new distribution and loan rules, qualifying taxpayers can claim the benefits even if the plan’s provisions aren’t actually changed.
Do You Have Coronavirus-Related Tax Relief Questions?
Please call our office at 386-490-9949 today to schedule a free and confidential consultation with experienced Florida tax preparation lawyer Ronald Cutler, P.A.
https://www.hotlineforhelp.com/complying-with-the-extended-tax-filing-deadline/
