IRS RELEASES DRAFT FORM 8915-E
IMPORTANT! The CARES Act provisions regarding “coronavirus-related distributions” are currently set to expire on December 31, 2020. Therefore, participants who believe they meet the qualification requirements and may be entitled to a coronavirus-related distribution should act NOW to avoid any last-minute processing delays or similar unforeseen holdups. Check with your plan administrator now if you think you may qualify.
Background. In response to the global COVID-19 pandemic, President Trump signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (see our blog at for details), which contained a number of provisions that directly affect 401(k) retirement plans, including provisions granting increased ease of access to 401(k) plan accounts by plan participants affected by the crisis. Prominent is a new rule allowing eligible individuals to withdraw from their 401(k) plan accounts, penalty-free, up to a total of $100,000 during calendar year 2020 in one or more “coronavirus-related distributions.”
IRS Releases Draft Form 8915-E. On November 9, 2020, the IRS issued an early release draft of Form 8915-E, “Qualified Disaster Retirement Plan Distributions and Repayments,” along with draft instructions, to be used by qualified individuals who receive “coronavirus-related distributions” from eligible retirement plans (including 401(k) plans) during 2020.
Repayments of Coronavirus-Related Distributions. Under the CARES Act, participants receiving coronavirus-related distributions are permitted to repay the distributed amount at any time within three years from the date of receipt of the coronavirus-related distribution. For tax purposes, repayments made within the three-year period are treated as though they were direct trustee-to-trustee transfers of eligible rollover distributions, thus avoiding taxation.
Taxation of Coronavirus-Related Distributions. Coronavirus-related distributions are treated the same as hardship withdrawals under 401(k) plans and are therefore not subject to the otherwise applicable 10% penalty tax. They are, however, subject to regular income taxation. To help soften the blow, the CARES Act generally spreads the income out over a three-year period, beginning with the 2020 tax year, unless a participant elects otherwise. In other words, unless a recipient affirmatively elects to pay the federal income tax all at once in 2020, it is automatically spread ratably over a three-year period.
Use of Form 8915-E. IRS guidance and the draft Instructions to Form 8915-E clarify that a qualified individual receiving a coronavirus-related distribution becomes entitled to the favorable tax treatment (the three-year spread discussed above), and/or reports repayments of any such distributions, by reporting the distribution on his or her federal income tax return for 2020 and by filing the new Form 8915-E — Qualified 2020 Disaster Retirement Plan Distributions and Repayments.
When completing the Form, be sure to carefully follow the instructions. Generally stated, however:
- Part I, Line 1 is used to report the amount of the total distributions (including coronavirus-related distributions) made from plans, including 401(k) plans, in 2020.
- Part II is used to figure the taxable amount during each of the three years (or to opt out of the three-year spread and elect to pay all of the tax in 2020), and also to report any repayments of coronavirus-related distributions made during 2020 (see discussion above).
- Parts III and IV of Form 8915-E do not apply to 401(k) plans, or are reserved for future use.
If the recipient has received distributions from the plan during 2020 other than coronavirus-related distributions, these may also need to be taken into account when completing the form.
CAUTION: Do Not File Draft Forms! Obviously the draft Form 8915-E is meant to be informational only at this point, and should not be completed and filed as it presently appears. It is anticipated that the IRS will soon be providing finalized versions of the Form and Instructions, in advance of the 2020 tax filing deadline.
The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k) retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.