Can I repay only part of my 401(k) COVID hardship withdrawal?


Q. I took a COVID hardship withdrawal from my 401(k). I understand that I have to claim it as income either at once or over three years on my tax return if I don’t pay it back within three years. But can I pay back just a portion? For example, if I took $20,000 but paid back $5,000 I would only be taxed on $15,000. Do my regular payroll deductions to my 401(k) count as repayment?
— Struggling

A. We hope things are going better for you now.

You do not have to pay back your entire coronavirus-related distribution.

You will need to file IRS Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

He said on the form, you can choose to be taxed on the entire distribution for 2020 or you can elect to spread the taxable amount over three tax years: 2020, 2021, and 2022.

“You would also indicate on Form 8915-E any repayments made before you file your 2020 Form 1040, by the due date, including extensions,” he said. “If you make a repayment after the due date for your 2020 Form 1040 but before the due date of your 2021 Form 1040 and you have spread the income over three years, the repayment should be reported on a 2021 Form 8915-E.”

If you end up reporting the entire income for 2020 and subsequently make a repayment after filing your 2020 Form 1040, you will need to file an amended tax return for 2020, Becourtney said.

And unfortunately, your current 401(k) contributions deducted from your gross wages have no bearing on the coronavirus-related distribution received in 2020, he said.

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This story was originally published on Feb. 11, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.