Due to the pandemic, the IRS is giving those taxpayers affected by COVID-19 a couple of options to help offset the impact of taking distributions from a retirement account.
Taxpayers that received a distribution from their retirement account due to the pandemic in 2020 may exclude the 10% early withdrawal penalty.
To complete this exclusion you must do the following:
1. Enter code "12" in the Penalty Exception Code field, located on Form 1099-R
*This code will apply the exception to the early withdrawal penalty automatically
Also, the IRS gives taxpayers the option to spread the taxable portion over 3 years to help those affected by COVID-19.
To complete this allocation, follow the instructions below:
1. Enter the amount of qualified coronavirus distribution included in Box 1 of the Form 1099-R on the Qualified 2020 Distribution area at the bottom of Form 1099-R
*This will automatically allocate the taxable portion over 3 years (review Form 8915-E, once you enter the distribution for correctness)