Tax-related COVID-19 News You May Not Have Heard

Marci RomneyBlog

Here’s a COVID -19 retirement-related easing that hasn’t got much attention: the 10% fine on pre-age-59 ½ payouts from retirement accounts is waived on up to 4100,000 of coronavirus-related distributions in 2020 from 401(k)s, 403(b)s and IRAs. A coronavirus-related distribution is defined as a payout to an individual who experiences financial difficulties from being diagnosed with COVID-19; who has a spouse or dependent with the disease; or who was laid off, furloughed, who has a spouse or dependent with the disease; or who was laid off, furloughed, saw reduced work hours or had child care issues. The administrator of the plan can rely on the individual’s written certification that he or she meets the conditions. Employer retirement plans such as 401(k)s are not required to adopt this easing.

Income tax on coronavirus-related distribution can be paid over three years.  Beginning with the payout year, unless the individual’s written certification that he or she meets the conditions. Employer retirement plans such as 401(k)s are not required to adopt this easing. Income tax on coronavirus-related distributions can be paid over three years, beginning with the payout year, unless the individual elects to pay the tax all at once. Individuals will use new form 8915-E to spread the tax on payouts from plans or IRAs.

Amounts contributed within the three-year time span won’t be taxable. They will be treated as rollovers and the federal income tax that was paid on the distribution can be recovered by filing an amended return on Form 1040-X.

Health Care Employers may allow workers to change their health coverage midyear. This includes giving employees who initially declined insurance the option to enroll in coverage or to let workers enroll in a different employer-sponsored plan. Midyear changes can also be made to dependent-care flexible spending arrangements and health FSAs. Any worker elections must be made on a prospective basis. IRS is granting these easings for 2020 in response to COVID-19. Also, employers that grant employees 2 ½ months after year-end to incur expenses for health FSAs may give workers until the end of 2020 to incur costs for 2019.

Health FSA plans can allow participants to carry over up to $550 to the following year without forfeiture, effective for plan years beginning in 2020. This is a $50 increase over the previous carryover amount of $500.

For more information please visit: https://www.kiplinger.com/