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What To Do If You Took A Coronavirus Related Distribution

What To Do If You Took A Coronavirus Related Distribution

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The 2020 tax season is upon us, and many people are wondering how the pandemic will impact their tax returns. One of the areas in question concerns the coronavirus-related distributions (CRDs). The individuals who took these distributions now face the decision about how to include these CRDs in their tax filings for this year and beyond. In this post, I will seek to clarify the various options available for income inclusion and CRD repayment as per this IRS issued notice in hopes that you are better able to determine which approach provides you with the most financial benefit.

What is a Coronavirus Related Distribution?

The CARES Act, which was passed during late March 2020, allowed individuals to take a penalty-free tax distribution from their retirement accounts if specific conditions applied that proved you or your household was adversely affected by the coronavirus. You can read more about that here. If you qualified for this distribution and decided to take it, you were then given various options on how to pay the taxes or return the money borrowed into a retirement account without paying taxes and penalties. The option that you elect can greatly impact the taxes you pay, so it’s important to know what those options are so that you pick the optimal approach.

What are my options?

Option 1: Including CRDs as Taxable Income

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