The IRS has issued guidance on Coronavirus-related distributions and plan loans. The guidance presents the rules set out in the CARES Act. It adds three new categories to the list of individuals who qualify due to adverse financial consequences.

It provides analysis and examples of repayments reporting. The guidance includes safe harbors for employee certification and the plan loan payment suspension period.

Background

The CARES Act provides that qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between January 1 and December 30, 2020. A coronavirus-related distribution is not subject to the 10 percent additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. Also, a coronavirus-related distribution can be included in income in equal installments over a three-year period. An individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the distribution’s tax consequences. The CARES Act also provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms.

New Categories of Qualified Individuals

One of the categories of individuals who qualify for Coronavirus-related distributions isis those who experience adverse financial consequences due to todue to Coronavirus. As laid out in the CARES act, these consequences may include: being quarantined; being furloughed or laid off or having work hours reduced due to such virus or disease; being unable to work due to lack of child care due to such virus or disease; and closing or reducing hours of a business owned or operated by the individual due to such virus or disease.

Recontributions

The new guidance goes into some detail about re-contributions. Individuals have up to three years to recontribute qualified distributions. Recontributed dollars are not taxed, so earlier returns may have to be amended. The rules differ depending on whether the individual recognizes income over three years or entirely in the year of distribution. If a qualified individual includes a coronavirus-related distribution rateable over a three-year period and the individual re-contributes any portion to an eligible retirement plan at any date before the timely filing of the individual’s federal income tax return (that is, by the due date, including extensions) for a tax year in the three-year period, the amount of the re-contribution will reduce the ratable portion of the coronavirus-related distribution that is includible in gross income for that tax year.

Please call our office if you would like more information on modifications to the rules on the use and distribution of retirement funds.

Venkat Iyer. CPA(USA). CPA(Canada). MBA

Venkat holds a CPA credential both in the USA and Canada, and he is very proficient in tax and compliance requirements in both countries. He is a Seasoned Business Adviser with 18+ years of extensive experience in diversified industries and accounting firms.He is also very prominent in implementing Lean Principles and Strong Financial Foundations for Hotels and Restaurants. He believes the key to any business success is knowing their indicators and their impact. He has been helping businesses with predictive analytics, transforming data from their enterprise's system for delivering meaningful insights.He is also a Business Automation Expert helping streamline the workflows from marketing to management to ensure optimal business performance.