21 Oct How do I pay taxes on a coronavirus retirement account withdrawal?
Q. If I take a coronavirus distribution from my retirement account, how do I spread the taxes out over a three year period?
— Needing cash
Those circumstances apply if either you, a spouse, or a dependent is diagnosed with COVID-19, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
It also applies if you experience adverse financial consequences because, for COVID-19-related reasons, you have been quarantined, furloughed, or laid off; had your work hours reduced; had to close or reduce the hours of your business; or been unable to work due to lack of child care, Becourtney said.
The Treasury and the IRS have said they may issue other qualifying factors as well, he said.
“A taxpayer who receives such a distribution can repay all or part of it within the three-year period beginning on the day after the distribution was received and have it treated as a tax-exempt rollover,” he said. “If the distribution is not repaid, it will be taxed as income over three years, 2020, 2021, and 2022, with one-third of the income reportable in each of these tax years.”
Also note that taxes will probably be withheld from your withdrawal.
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This story was originally published on Oct. 21, 2020.
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