The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) was signed into law on March 27, 2020. The legislation provides emergency assistance and healthcare response for individuals, families, and businesses affected by the 2020 coronavirus pandemic. One provision contained in this legislation allows a qualified individual to take coronavirus-related distributions from his or her qualified retirement plans. Although this provision is beneficial to many taxpayers, there are some issues to consider.


The first issue to recognize is the time frame for making withdrawals. Any qualified withdrawal must be taken on or after January 1, 2020, and before December 31, 2020—with the key word being “before” rather than “on or before” December 31.

The second issue is determining if a person is a qualified individual. CARES Act §2202(a)(4)(A)(ii) holds that a qualified individual is one:

  • Who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 by a test approved by the Centers for Disease Control and Prevention (CDC), or
  • Whose spouse or dependent (as defined in IRC §152) is diagnosed with such virus or disease by such a test, or
  • Who experiences adverse financial consequences as a result of being quarantined; being furloughed or laid off, or having work hours reduced due to such virus or disease; being unable to work due to lack of childcare due to such virus or disease; closing or reducing hours of a business owned or operated by the individual due to such virus or disease; or other factors as determined by the Secretary of the Treasury.


The third issue is the taxation of the coronavirus-related distributions. A qualified individual can withdraw in an aggregate (total) amount up to $100,000 without being subject to the 10% additional tax per IRC §72(t)—even if the person is younger than 59-and-a-half years old. The distribution amounts, however, are still included in the taxpayer’s gross income. And this is where things get a bit tricky between the tax treatment and the possible repayment of the withdrawals to the retirement plan.

CARES Act §2202(a)(3)(A) provides that a coronavirus-related distribution can be repaid to an eligible retirement plan at any time during the three-year period beginning the day after the distribution was received. If a taxpayer makes multiple withdrawals, the date of each distribution should be noted if he or she is considering making repayments. The taxpayer is able to make one or more repayments up to the qualified distribution amount as long as the individual is a beneficiary of that plan and a rollover contribution is permitted under IRC §402(c), §403(a)(4), §403(b)(8), §408(d)(3), or §457(e)(16). Those repayments wouldn’t be subject to annual retirement plan contribution limits, but the total of those contributions can’t exceed the amount of all of the qualified distributions.

In the case of a distribution from a qualified retirement plan, a §403(b) plan, or an IRA, the repayments “are treated as a trustee-to-trustee rollover (as if they were made directly from one financial institution to another, otherwise individuals might violate rules on rollovers or contribution limits)” according to the Congressional Research Service (CRS) report on the Retirement and Pension Provisions in the CARES Act, In Focus (IF11482, version 2, April 1, 2020).

In general, without the CARES Act, a distribution from a qualified plan for a special situation (e.g., education needs, hardship, or first-time home purchase) can’t be returned to the qualified plan. This ability to repay the distribution back to the qualified retirement plan with the CARES Act is unique and beneficial for a taxpayer’s incentive to save for retirement.

Act §2202(a)(5)(A), however, provides a twist to the repayment provision because the taxpayer can report the qualified distributions as income in the year received or equally over the three-year period beginning in the year received. In other words, if the taxpayer doesn’t elect to report all of the distribution in the year of receipt, the coronavirus-related distribution amount will be included equally in gross income over the three-year period starting in 2020 (since the distribution or distributions must be made before December 31, 2020).

Although Act §2202(a)(3) allows individuals to withdraw and then return up to $100,000 from their qualified plans, the law doesn’t specifically spell out how the repayment or repayments would be handled if an individual included the whole coronavirus-related distribution as income in either the first year it was received or if the taxpayer instead reported the income equally over the three-year period. The Staff of the Joint Committee on Taxation (JCX-12-20, April 22, 2020) does provide its interpretation of these two tax provisions: If an individual receives a coronavirus-related distribution in 2020, that amount is included in income, generally ratably over the year of the distribution and the following two years and isn’t subject to the 10% early withdrawal tax.

If, in 2022, the amount of the coronavirus-related distribution is recontributed to an eligible retirement plan, the individual may file amended returns to claim a refund of the tax attributable to the amounts previously included in income. In addition, if a portion of the distribution hasn’t yet been included in income at the time of the contribution, the remaining amount isn’t includable in income.


The fourth issue is that a loan can be taken from defined contribution retirement accounts and not treated as a distribution, meaning it won’t be taxed as ordinary income and probably requires less paperwork. A qualified participant may take a loan during the 180-day period beginning on the enactment of the CARES Act (March 27, 2020), with an increased maximum loan limit from $50,000 to $100,000 and not to exceed 100% of the participant’s vested account balance. Also, the repayment due date of currently unpaid loans is delayed one year if the original due date is between March 27, 2020, and December 31, 2020. That is, the normal repayment period extends from five years to six years for a qualified participant, but interest will continue to accrue.

Overall, this provides a welcome source of income for individuals who are in need during this crisis. Of course, it does require that individuals have qualified retirement plans from which to draw such funds. Although the tax treatment of the distribution and its repayment may not be well-defined by Congress at the moment, there’s adequate time for the Treasury Department to provide guidance.

© 2020 A.P. Curatola

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