Guidance for Coronavirus-Related Distributions and Loans from
Retirement Plans Under the CARES Act
Notice 2020-50
PURPOSE
This notice provides guidance relating to the application of section 2202 of
the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134
Stat. 281 (2020) (CARES Act) for qualified individuals and eligible retirement
plans. The CARES Act was enacted on March 27, 2020. Under section 2202 of
the CARES Act, qualified individuals receive favorable tax treatment with respect
to distributions from eligible retirement plans that are coronavirus-related
distributions. A coronavirus-related distribution is not subject to the 10%
additional tax under § 72(t) of the Internal Revenue Code (Code) (including the
25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs),
generally is includible in income over a 3-year period, and, to the extent the
distribution is eligible for tax-free rollover treatment and is contributed to an
eligible retirement plan within a 3-year period, will not be includible in income.
Section 2202 of the CARES Act also increases the allowable plan loan amount
under § 72(p) of the Code and permits a suspension of payments for plan loans
outstanding on or after March 27, 2020, that are made to qualified individuals.
The guidance in this notice is intended to assist employers and plan
administrators, trustees and custodians, and qualified individuals in applying
section 2202 of the CARES Act, including by providing guidance on how plans
may report coronavirus-related distributions and how individuals may report
these distributions on their individual federal income tax returns.
BACKGROUND
A. Distributions
Under § 402(c)(8), an eligible retirement plan includes an individual
retirement arrangement (IRA) under § 408(a) or (b), a qualified plan under
§ 401(a), an annuity plan under § 403(a), a § 403(b) plan, and a governmental
deferred compensation plan under § 457(b). Distributions from these plans
generally are includible in the distributee’s gross income in the year of the
distribution. For example, for qualified plans, § 402(a) provides that any amount
actually distributed to a distributee is taxable to the distributee in the taxable year
of the distribution under § 72. Similar rules apply to § 403(b) plans under
§ 403(b)(1), governmental § 457(b) plans under § 457(a), and IRAs under
§ 408(d)(1).
Section 402(c)(4) provides that any distribution of all or a portion of the
balance to the credit of an employee under a qualified plan is an eligible rollover
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distribution with certain exceptions. These exceptions include substantially equal
periodic payments over a specified period of at least 10 years, or for the life or
the life expectancy of the employee (or the employee and the employee’s
designated beneficiary); minimum distributions required under § 401(a)(9); and
any distribution that is made upon the hardship of an employee. This same
definition of eligible rollover distribution applies to distributions from § 403(b)
plans under § 403(b)(8) and governmental § 457(b) plans under § 457(e)(16).
Generally, any distribution from an IRA is eligible for rollover except a required
minimum distribution or certain distributions from inherited IRAs. Section 2203 of
the CARES Act provides that, for eligible retirement plans other than defined
benefit plans, no minimum distributions under § 401(a)(9) are required for 2020.
Under § 401(a)(31)(A), if a distributee elects to have an eligible rollover
distribution paid directly to an eligible retirement plan and specifies the eligible
retirement plan to receive the distribution, a qualified plan must pay the
distribution to that eligible retirement plan in a direct rollover. Similar rules apply
to § 403(b) plans under § 403(b)(10) and governmental § 457(b) plans under
§ 457(d)(1).
Q&A-14 of § 1.401(a)(31)-1 provides that if a plan accepts an invalid
rollover contribution, for purposes of applying the qualification requirements to
the receiving plan, the contribution will be treated as if it were a valid rollover
contribution if two conditions are satisfied. First, when accepting the amount
from the employee as a rollover contribution, the plan administrator of the
receiving plan reasonably concludes that the contribution is a valid rollover
contribution. Second, if the plan administrator later determines that the rollover
contribution was an invalid rollover contribution, any amount attributable to the
invalid rollover contribution (including earnings) must be distributed to the
employee within a reasonable amount of time after the determination.
Under § 402(c), if an eligible rollover distribution is contributed to an
eligible retirement plan in a direct rollover or within 60 days from the date of
distribution as a rollover contribution, the amount rolled over is not includible in
the distributee’s gross income. In certain situations, the 60-day rollover period is
extended; for example, under § 402(c)(3), the rollover period for qualified plan
loan offsets is extended to the federal income tax return deadline for the year of
the distribution.
Section 401(k)(2)(B)(i) generally provides that amounts attributable to
elective contributions under a qualified cash or deferred arrangement may not be
distributable to participants or beneficiaries earlier than severance from
employment, death or disability, plan termination, attainment of age 59½,
hardship of the employee, entitlement to a qualified reservist distribution, or, for
amounts held in lifetime income investments, 90 days prior to the date that the
lifetime income investment is no longer held by the arrangement. Similar rules
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apply to custodial accounts under § 403(b)(7)(A)(i), to annuity contracts under
§ 403(b)(11), and to governmental § 457(b) plans under § 457(d)(1)(A).
Section 72(t)(1) imposes an additional tax on early distributions from
eligible retirement plans (other than governmental § 457(b) plans, unless a
distribution is attributable to an amount that was transferred to the § 457(b) plan
from a plan that was subject to § 72(t)). In general, this additional tax is equal to
10% of the portion of the distribution that is includible in income. For any amount
distributed from a SIMPLE IRA during the 2-year period described in § 72(t)(6),
the rate of the additional tax is increased from 10% to 25%. Section 72(t)(2)
provides a number of exceptions to this additional tax, including, for example,
exceptions for distributions made on or after the employee attains age 59½,
distributions made to a beneficiary on or after the employee’s death, distributions
made because of the employee’s disability, and distributions that are part of
substantially equal periodic payments made over the employee’s life or life
expectancy.
Section 402(f) provides that a plan is required to provide a distributee,
within a reasonable period of time before an eligible rollover distribution is made,
a written explanation of the distributee’s rollover rights and the tax and other
potential consequences of the distribution or rollover.
B. Plan loans
Section 72(p) imposes certain requirements relating to plan loans. Unless
these requirements are satisfied, an amount received by a participant as a loan is
treated as having been received as a distribution from the plan (deemed
distribution). Deemed distributions are includible in income and are subject to
the 10% additional tax under § 72(t), unless an exception applies.
Under § 72(p)(2)(A), a plan loan (when added to the outstanding balance
of all other loans outstanding) must not exceed the lesser of (1) $50,000 reduced
by the excess of the highest outstanding balance of loans from the plan during
the 1-year period ending on the day before the date on which the loan is made
over the outstanding balance of loans from the plan on the date that the loan is
made, or (2) the greater of $10,000 or one-half of the present value of the
participant’s nonforfeitable accrued benefit under the plan. Section 72(p)(2)(B)
provides that a loan must be repaid within 5 years. However, an exception to the
5-year repayment rule applies for loans used to acquire any dwelling unit that will
be used (determined at the time the loan is made) as the participant’s principal
residence. Section 72(p)(2)(C) requires substantially level amortization of a plan
loan (with payments not less frequently than quarterly) over the term of the loan.
Q&A-10(a) of § 1.72(p)-1 provides that the failure to make any installment
payment when due, in accordance with the terms of a loan, violates § 72(p)(2)(C)
and, accordingly, results in a deemed distribution at the time of the failure.
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However, the plan administrator may allow a cure period, and § 72(p)(2)(C) will
not be considered to have been violated if the installment payment is made not
later than the end of the cure period, which cannot continue beyond the last day
of the calendar quarter following the calendar quarter in which the required
installment payment was due. If there is a failure to pay the installment
payments required under the terms of the loan (taking into account any cure
period allowed under Q&A-10(a)), then the amount of the deemed distribution
equals the entire outstanding balance of the loan (including accrued interest) at
the time of the failure. Under Q&A-13(b) of § 1.72(p)-1 and Q&A-9(b) of
§ 1.402(c)-2, a distribution of a plan loan offset amount occurs when, under the
terms governing a plan loan, the accrued benefit of a participant or beneficiary is
reduced (or offset) in order to repay the loan (including the enforcement of the
plan’s security interest in the accrued benefit). In the event of a plan loan offset,
including a qualified plan loan offset described in § 402(c)(3)(C), the amount of
the account balance that is offset against the loan is an actual distribution, not a
deemed distribution.
SECTION 1. CORONAVIRUS-RELATED DISTRIBUTIONS
A. Special tax treatment for coronavirus-related distributions
Section 2202(a) of the CARES Act provides for special tax treatment for a
coronavirus-related distribution. The section provides an exception to the 10%
additional tax under § 72(t) of the Code (including the 25% additional tax under
§ 72(t)(6) for certain distributions from SIMPLE IRAs), allows the distribution to
be included in income ratably over 3 years, and provides that the distribution will
be treated as though it were paid in a direct rollover to an eligible retirement plan
if the distribution is eligible for tax-free rollover treatment and is recontributed to
an eligible retirement plan within the 3-year period beginning on the day after the
date on which the distribution was received. The section also permits special
treatment for coronavirus-related distributions under employer retirement plans
(eligible retirement plans other than IRAs), as described in section 2 of this
notice.
B. Definition of qualified individual
Pursuant to section 2202(a)(4)(A)(ii) of the CARES Act, a qualified
individual for purposes of this notice is an individual:
• who is diagnosed with the virus SARS-CoV-2 or with coronavirus
disease 2019 (referred to collectively in this notice as COVID-19)
by a test approved by the Centers for Disease Control and
Prevention (including a test authorized under the Federal Food,
Drug, and Cosmetic Act);
• whose spouse or dependent (as defined in section 152 of the
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Code) is diagnosed with COVID-19 by a test approved by the
Centers for Disease Control and Prevention (including a test
authorized under the Federal Food, Drug, and Cosmetic Act; or
• who experiences adverse financial consequences as a result of:
o the individual being quarantined, being furloughed or laid off,
or having work hours reduced due to COVID-19;
o the individual being unable to work due to lack of childcare
due to COVID-19; or
o closing or reducing hours of a business owned or operated
by the individual due to COVID-19.
In addition, pursuant to the authority of the Secretary to issue guidance to
provide for other factors under section 2202(a)(4)(A)(ii)(III) of the CARES Act, a
qualified individual for purposes of this notice is an individual who experiences
adverse financial consequences as a result of:
• the individual having a reduction in pay (or self-employment
income) due to COVID-19 or having a job offer rescinded or start
date for a job delayed due to COVID-19;
• the individual’s spouse or a member of the individual’s household
(as defined below) being quarantined, being furloughed or laid off,
or having work hours reduced due to COVID-19, being unable to
work due to lack of childcare due to COVID-19, having a reduction
in pay (or self-employment income) due to COVID-19, or having a
job offer rescinded or start date for a job delayed due to COVID-19;
or
• closing or reducing hours of a business owned or operated by the
individual’s spouse or a member of the individual’s household due
to COVID-19.
For purposes of applying these additional factors, a member of the individual’s
household is someone who shares the individual’s principal residence.
C. Definition of coronavirus-related distribution
Section 2202(a)(4)(A) of the CARES Act defines a coronavirus-related
distribution as any distribution from an eligible retirement plan made on or after
January 1, 2020, and before December 31, 2020, to a qualified individual.
Section 2202(a)(2) of the CARES Act limits the amount of aggregate distributions
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from all eligible retirement plans that can be treated as coronavirus-related
distributions to no more than $100,000.
In general, a qualified individual is permitted to designate a distribution
described in the preceding paragraph as a coronavirus-related distribution. This
designation is permitted to be made with respect to any distribution to a qualified
individual that would meet the requirements of a coronavirus-related distribution
without regard to whether the plan treated the distribution as a coronavirus-
related distribution. Thus, periodic payments and distributions that would have
been required minimum distributions but for section 2203 of the CARES Act,
received by a qualified individual from an eligible retirement plan on or after
January 1, 2020, and before December 31, 2020, are permitted to be treated as
coronavirus-related distributions and, therefore, permitted to be included in
income ratably over 3 years. Similarly, any distribution received by a qualified
individual as a beneficiary can be treated as a coronavirus-related distribution. In
addition, a reduction or offset of a qualified individual’s account balance in order
to repay a plan loan, as described in Q&A-9(b) of § 1.402(c)-2, including a
qualified plan loan offset, is permitted to be treated as a coronavirus-related
distribution. See section 1.D of this notice for rules relating to which coronavirus-
related distributions are permitted to be recontributed to an eligible retirement
plan.
However, any amount described in Q&A-4 of §1.402(c)-2 is not permitted
to be treated as a coronavirus-related distribution. Thus, the following amounts
are not coronavirus-related distributions: corrective distributions of elective
deferrals and employee contributions that are returned to the employee (together
with the income allocable thereto) in order to comply with the § 415 limitations,
excess elective deferrals under § 402(g), excess contributions under § 401(k),
and excess aggregate contributions under § 401(m); loans that are treated as
deemed distributions pursuant to § 72(p); dividends paid on applicable employer
securities under § 404(k); the costs of current life insurance protection; prohibited
allocations that are treated as deemed distributions pursuant to § 409(p);
distributions that are permissible withdrawals from an eligible automatic
contribution arrangement within the meaning of § 414(w); and distributions of
premiums for accident or health insurance under § 1.402(a)-1(e)(1)(i).
The definition of a coronavirus-related distribution under section
2202(a)(4) of the CARES Act does not limit these distributions to amounts
withdrawn solely to meet a need arising from COVID-19. Thus, for example, for
an individual who is a qualified individual as a result of experiencing adverse
financial consequences as described above, coronavirus-related distributions are
permitted without regard to the qualified individual’s need for funds, and the
amount of the distribution is not required to correspond to the extent of the
adverse financial consequences experienced by the qualified individual.
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As explained in section 2.C of this notice, an employer retirement plan
also is permitted, but not required, to treat a plan distribution meeting the
conditions described in this section 1.C as a coronavirus-related distribution. It is
possible that a qualified individual’s designation of a coronavirus-related
distribution may be different from the employer retirement plan’s treatment of the
distribution. This different treatment could occur, for example, if a qualified
individual has more than one plan distribution that meets the requirements of a
coronavirus-related distribution, but one of those distributions occurs before the
effective date of the plan amendment providing for coronavirus-related
distributions. The different treatment could also occur, for example, if a qualified
individual has distributions from more than one eligible retirement plan, and the
aggregate amount of those distributions exceeds $100,000.
D. Certain coronavirus-related distributions are permitted to be recontributed
Coronavirus-related distributions may be included in income ratably over 3
years and are not subject to the 10% additional tax under § 72(t). However, only
a coronavirus-related distribution that is eligible for tax-free rollover treatment
under § 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) is permitted to be
recontributed to an eligible retirement plan, and that recontribution will be treated
as having been made in a trustee-to-trustee transfer to that eligible retirement
plan. Any coronavirus-related distribution (whether from an employer retirement
plan or an IRA) paid to a qualified individual as a beneficiary of an employee or
IRA owner (other than the surviving spouse of the employee or IRA owner)
cannot be recontributed.
In general, a distribution from an employer retirement plan made on
account of hardship is not an eligible rollover distribution. However, if the
distribution satisfies the requirements under section 1.C of this notice, then,
except as otherwise provided in section 6 of this notice (relating to nonqualified
deferred compensation plans), the distribution is not treated as made on account
of hardship for purposes of this notice and, thus, any portion of the distribution is
permitted to be recontributed to an eligible retirement plan.
See section 4.C of this notice for rules relating to recontributions of
coronavirus-related distributions.
SECTION 2. GUIDANCE FOR EMPLOYER RETIREMENT PLANS MAKING
CORONAVIRUS-RELATED DISTRIBUTIONS
A. Coronavirus-related distributions generally are treated as satisfying certain
plan distribution restrictions
Under section 2202(a)(6) of the CARES Act, a distribution designated as a
coronavirus-related distribution by an employer retirement plan is treated as
meeting the distribution restrictions for qualified cash or deferred arrangements
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under § 401(k)(2)(B)(i), custodial accounts under § 403(b)(7)(A)(i), annuity
contracts under § 403(b)(11), governmental deferred compensation plans under
§ 457(d)(1)(A), and the Thrift Savings Plan under 5 U.S.C. 8433(h)(1). Thus, for
example, an employer may expand the distribution options under its plan to allow
an amount attributable to an elective, qualified nonelective, qualified matching, or
safe harbor contribution under a qualified cash or deferred arrangement to be
distributed as a coronavirus-related distribution even though it is distributed
before an otherwise permitted distributable event, such as severance from
employment, disability, or attainment of age 59½.
Except as described above, section 2202 of the CARES Act does not
change the rules for when plan distributions are permitted to be made from
employer retirement plans. Thus, for example, a qualified plan that is a pension
plan (such as a money purchase pension plan) is not permitted to make a
distribution before an otherwise permitted distributable event merely because the
distribution, if made, would qualify as a coronavirus-related distribution. Further,
a pension plan is not permitted to make a distribution under a distribution form
that is not a qualified joint and survivor annuity without spousal consent merely
because the distribution, if made, could be treated as a coronavirus-related
distribution.
B. Direct rollover, § 402(f) notice, and 20% withholding requirements are not
applicable to coronavirus-related distributions
If a distribution is treated as a coronavirus-related distribution by an
employer retirement plan, the rules for eligible rollover distributions under
§§ 401(a)(31), 402(f), and 3405 are not applicable to the distribution. Thus, the
plan is not required to offer the qualified individual a direct rollover with respect to
the distribution. In addition, the plan administrator is not required to provide a
§ 402(f) notice. Finally, the plan administrator or payor of the coronavirus-related
distribution is not required to withhold an amount equal to 20% of the distribution,
as is usually required under § 3405(c)(1). However, a coronavirus-related
distribution is subject to the voluntary withholding requirements of § 3405(b) and
§ 35.3405-1T.
C. Treatment of distributions as coronavirus-related distributions
An employer is permitted to choose whether, and to what extent, to treat
distributions under its plans as coronavirus-related distributions (as well as
whether, and to what extent, to apply coronavirus-related plan loan rules
described in section 5 of this notice). Thus, for example, an employer may
choose to provide for coronavirus-related distributions but choose not to change
its plan loan provisions or loan repayment schedules. Further, the employer (or
plan administrator) is permitted to develop any reasonable procedures for
identifying which distributions are treated as coronavirus-related distributions
under its retirement plans. However, if, under an employer retirement plan, any
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distribution of an amount subject to § 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11)
or 457(d)(1)(A) is treated as a coronavirus-related distribution, the plan must be
consistent in its treatment of similar distributions. Accordingly, the amount of the
distribution must be taken into account in determining the $100,000 limit on
coronavirus-related distributions made under all the retirement plans maintained
by the employer. Even if, under a plan, a distribution is not treated as
coronavirus-related, a qualified individual may treat a distribution that meets the
requirements of section 1.C of this notice as a coronavirus-related distribution on
the individual's federal income tax return.
D. Distribution limits on coronavirus-related distributions
The total amount of distributions treated by an employer as coronavirus-
related distributions under all its retirement plans with respect to a qualified
individual is not permitted to exceed $100,000. For purposes of this rule, the
term “employer” means the employer maintaining the plan and those employers
required to be aggregated with the employer under § 414(b), (c), (m), or (o).
However, a plan will not fail to satisfy any requirement under the Code merely
because a qualified individual’s total coronavirus-related distributions exceed
$100,000 taking into account distributions from IRAs or other eligible retirement
plans maintained by unrelated employers.
E. Reliance on certifications
The administrator of an eligible retirement plan may rely on an individual’s
certification that the individual satisfies the conditions to be a qualified individual
in determining whether a distribution is a coronavirus-related distribution, unless
the administrator has actual knowledge to the contrary. The requirement that an
administrator not have “actual knowledge” that is contrary to an individual’s
certification does not mean that the administrator has an obligation to inquire into
whether an individual has satisfied the conditions described in section 1.B of this
notice to be a qualified individual. Rather, this requirement is limited to situations
in which the administrator already possesses sufficiently accurate information to
determine the veracity of a certification.
The following is an example of an acceptable certification:
Name: _______________________ (and other identifying
information requested by the employer for administrative purposes).
I certify that I meet at least one of the following conditions: (1) I was
diagnosed with the virus SARS-CoV-2 or with coronavirus disease
2019 (referred to collectively as COVID-19) by a test approved by
the Centers for Disease Control and Prevention (including a test
authorized under the Federal Food, Drug, and Cosmetic Act);
(2) my spouse or my dependent was diagnosed with COVID-19 by
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a test approved by the Centers for Disease Control and Prevention
(including a test authorized under the Federal Food, Drug, and
Cosmetic Act); or (3) I have experienced adverse financial
consequences because: (i) I, my spouse, or a member of my
household was quarantined, furloughed or laid off, or had work
hours reduced due to COVID-19; (ii) I, my spouse, or a member of
my household was unable to work due to lack of childcare due to
COVID-19; (iii) a business owned or operated by me, my spouse,
or a member of my household closed or reduced hours due to
COVID-19; or (iv) I, my spouse, or a member of my household had
a reduction in pay (or self-employment income) due to COVID-19 or
had a job offer rescinded or start date for a job delayed due to
COVID-19.
Signature: ______________________
Although an administrator may rely on an individual’s certification in
making and reporting a distribution, the individual is entitled to treat the
distribution as a coronavirus-related distribution for purposes of the individual’s
federal income tax return only if the individual actually meets the eligibility
requirements for that treatment under section 1 of this notice.
F. An employer retirement plan will be treated as operating in accordance with
its terms if certain requirements are satisfied
An employer retirement plan will not be treated as failing to operate in
accordance with its terms merely because the plan implements the provisions of
section 2202 of the CARES Act if the employer amends its plan by the dates
described in this paragraph. For employer retirement plans other than
governmental plans under § 414(d) of the Code, the date by which any plan
amendment to reflect the CARES Act is required to be made is the last day of the
first plan year beginning on or after January 1, 2022. For governmental plans
under § 414(d) of the Code, the date by which any plan amendment to reflect the
CARES Act is required to be made is the last day of the first plan year beginning
on or after January 1, 2024. Pursuant to the authority of the Secretary under
section 2202(c)(2) of the CARES Act, these dates may be extended in future
guidance.
SECTION 3. GUIDANCE FOR ELIGIBLE RETIREMENT PLANS MAKING OR
ACCEPTING RECONTRIBUTION OF CORONAVIRUS-RELATED
DISTRIBUTIONS
This section provides guidance for eligible retirement plans (that is,
employer retirement plans and IRAs) making, or accepting recontribution of,
coronavirus-related distributions.
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A. Tax reporting on coronavirus-related distributions
An eligible retirement plan must report the payment of a coronavirus-
related distribution to a qualified individual on Form 1099-R, Distributions from
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc. This reporting is required even if the qualified individual
recontributes the coronavirus-related distribution to the same eligible retirement
plan in the same year. If a payor is treating the payment as a coronavirus-related
distribution and no other appropriate code applies, the payor is permitted to use
distribution code 2 (early distribution, exception applies) in box 7 of Form 1099-R.
However, a payor also is permitted to use distribution code 1 (early distribution,
no known exception) in box 7 of Form 1099-R.
B. Accepting recontributions of coronavirus-related distributions
In general, a qualified individual who receives a coronavirus-related
distribution that is eligible for tax-free rollover treatment is permitted to
recontribute, at any time in a 3-year period, any portion of the distribution to an
eligible retirement plan that is permitted to accept eligible rollover contributions.
The relief in Q&A-14 of § 1.401(a)(31)-1 applies to an employer retirement plan
accepting recontributions of coronavirus-related distributions. In order to obtain
the relief described in Q&A-14 of § 1.401(a)(31)-1, a plan administrator accepting
the recontribution of a coronavirus-related distribution must reasonably conclude
that the recontribution is eligible for direct rollover treatment under section
2202(a)(3) of the CARES Act and that the recontribution is made in accordance
with the rules under section 4.C of this notice. In making this determination, the
rule in section 2.E of this notice applies. Thus, the administrator of an eligible
retirement plan may rely on an individual’s certification that the individual satisfies
the conditions to be a qualified individual in determining whether a distribution is
a coronavirus-related distribution, unless the administrator has actual knowledge
to the contrary.
In general, it is anticipated that eligible retirement plans will accept
recontributions of coronavirus-related distributions, which are to be treated as
rollover contributions. However, eligible retirement plans generally are not
required to accept rollover contributions. For example, if a plan does not accept
any rollover contributions, the plan is not required to change its terms or
procedures to accept recontributions of coronavirus-related distributions.
SECTION 4. GUIDANCE FOR INDIVIDUALS RECEIVING CORONAVIRUS-
RELATED DISTRIBUTIONS UNDER SECTION 2202 OF THE CARES ACT
This section provides guidance for qualified individuals requesting and
receiving coronavirus-related distributions. A qualified individual receiving a
coronavirus-related distribution is entitled to the following favorable tax treatment
with respect to the distribution by reporting the distribution on the individual’s
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federal income tax return for 2020 and on Form 8915-E, Qualified 2020 Disaster
Retirement Plan Distributions and Repayments (or if there is no federal income
tax return for 2020, by filing just Form 8915-E).
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First, the 10% additional tax
under § 72(t) (including the 25% additional tax under § 72(t)(6) for certain
distributions from SIMPLE IRAs) does not apply to any coronavirus-related
distribution. Second, a coronavirus-related distribution is permitted to be
included in income ratably over 3 years. Third, a qualified individual is permitted
to recontribute any portion of a coronavirus-related distribution that is eligible for
tax-free rollover treatment to an eligible retirement plan within the 3-year period
beginning on the day after the date on which the distribution was received, and
the recontribution will be treated as if it were paid in a trustee-to-trustee transfer
to an eligible retirement plan. See section 1.D of this notice for rules relating to
which coronavirus-related distributions are permitted to be recontributed.
Qualified individuals will use Form 8915-E to report any recontribution made
during the taxable year and to determine the amount of the coronavirus-related
distribution includible in income for the taxable year.
A. Election to designate a distribution as a coronavirus-related distribution
A qualified individual is permitted to designate any distribution described in
section 1.C of this notice as a coronavirus-related distribution provided the total
amount treated by the individual as coronavirus-related distributions from all
eligible retirement plans does not exceed $100,000.
Example 1. If a qualified individual receives a distribution of $50,000 in
August of 2020 and a distribution of $75,000 in September of 2020 and both
distributions satisfy the definition of a coronavirus-related distribution, only
$100,000 of the $125,000 received by the qualified individual can be treated as a
coronavirus-related distribution. Thus, the individual can only treat $100,000 of
the August and September distributions as coronavirus-related distributions on
the individual’s 2020 federal income tax return. Assuming no § 72(t)(2) exception
applies, the remaining $25,000 of the distribution is an early distribution that is
subject to the 10% additional tax. This amount must be included on the
individual’s 2020 federal income tax return and will not be eligible for 3-year
recontribution to an eligible retirement plan.
Example 2. A section 401(k) plan distributes $35,000 to a qualified
individual on December 1, 2020. The qualified individual also receives a
distribution from the individual’s IRA on December 1, 2020, of $15,000. The
individual is permitted to treat both the $35,000 from the plan and the $15,000
from the IRA as coronavirus-related distributions on the individual’s 2020 federal
income tax return.
B. Income inclusion for coronavirus-related distributions
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Form 8915-E is expected to be available before the end of 2020.
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There are two methods for a qualified individual to include the taxable
portion of a coronavirus-related distribution in income. A qualified individual who
receives a coronavirus-related distribution is permitted to include the taxable
portion of the distribution in income ratably over a 3-year period that begins in the
year of the distribution. Alternatively, a qualified individual is permitted to elect
out of the 3-year ratable income inclusion and include the entire amount of the
taxable portion of the distribution in income in the year of the distribution. This
election cannot be made or changed after the timely filing of the individual’s
federal income tax return (including extensions) for the year of the distribution.
All coronavirus-related distributions received in a taxable year must be treated
consistently (either all distributions must be included in income over a 3-year
period or all distributions must be included in income in the current year).
Example. Taxpayer A receives a $30,000 distribution from his or her IRA
on October 1, 2020. Taxpayer A is a qualified individual and elects to treat the
distribution as a coronavirus-related distribution. Taxpayer A uses the 3-year
ratable income inclusion for the $30,000 distribution. Taxpayer A should include
$10,000 in income with respect to the coronavirus-related distribution on each of
the individual’s 2020, 2021, and 2022 federal income tax returns.
C. Tax treatment of recontributions of coronavirus-related distributions
If a coronavirus-related distribution is eligible for tax-free rollover treatment
(taking into account section 1.D of this notice), a qualified individual is permitted,
at any time in the 3-year period beginning the day after the date of a coronavirus-
related distribution, to recontribute any portion of the distribution, but not an
amount in excess of the amount of the distribution, to an eligible retirement plan.
A recontribution of a coronavirus-related distribution will not be treated as a
rollover contribution for purposes of the one-rollover-per-year limitation under
§ 408(d)(3)(B).
D. Tax treatment of recontributions of a coronavirus-related distribution made to
a taxpayer who uses the 1-year income inclusion method
If a qualified individual elects to include all coronavirus-related
distributions received in a year in gross income for that year and recontributes
any portion of the coronavirus-related distributions to an eligible retirement plan
at any time during the 3-year recontribution period, then the amount of the
recontribution will reduce the amount of the coronavirus-related distribution
included in gross income for the year of the distribution. The qualified individual
will report the amount of the recontribution on Form 8915-E (which will be filed
with the individual’s federal income tax return, if applicable).
If a qualified individual includes a coronavirus-related distribution in gross
income in the year of the distribution and recontributes the distribution to an
eligible retirement plan after the timely filing of the individual’s federal income tax
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return for the year of the distribution (that is, after the due date, including
extensions), the individual will need to file an amended federal income tax return
for the year of the distribution. The qualified individual will need to file a revised
Form 8915-E (with his or her amended federal income tax return) to report the
amount of the recontribution and should reduce his or her gross income by the
amount of the recontribution, but not in an amount exceeding the amount of the
coronavirus-related distribution.
Example 1. Taxpayer B receives a $45,000 distribution from a § 403(b)
plan on November 1, 2020. Taxpayer B is a qualified individual and treats the
distribution as a coronavirus-related distribution. Taxpayer B receives no other
coronavirus-related distribution from any eligible retirement plan. Taxpayer B
recontributes $45,000 to an IRA on March 31, 2021. Taxpayer B reports the
recontribution on Form 8915-E and files the 2020 federal income tax return on
April 10, 2021. For Taxpayer B, no portion of the coronavirus-related distribution
is includible as income for the 2020 tax year.
Example 2. The facts are the same as in Example 1 of this section 4.D,
except that Taxpayer B timely requests an extension of time to file the 2020
federal income tax return and makes a recontribution on August 2, 2021, before
filing the 2020 federal income tax return. Taxpayer B files the 2020 federal
income tax return on August 10, 2021. As in Example 1, no portion of the
coronavirus-related distribution is includible in income for the 2020 tax year
because Taxpayer B made the recontribution before the timely filing of the 2020
federal income tax return.
Example 3. Taxpayer C receives a $15,000 distribution from a
governmental § 457(b) plan on March 30, 2020. Taxpayer C is a qualified
individual and treats the distribution as a coronavirus-related distribution.
Taxpayer C elects out of the 3-year ratable income inclusion on Form 8915-E
and includes the entire $15,000 in gross income for the 2020 taxable year. On
December 31, 2022, Taxpayer C recontributes $15,000 to the § 457(b) plan.
Taxpayer C will need to file an amended federal income tax return for the 2020
tax year to report the amount of the recontribution and reduce the gross income
by $15,000 with respect to the coronavirus-related distribution included on the
2020 original federal income tax return.
E. Tax treatment for year of recontribution of a coronavirus-related distribution
made to a taxpayer who uses the 3-year ratable income inclusion method
As explained above, a qualified individual is permitted to include a
coronavirus-related distribution in income ratably over a 3-year period. If a
qualified individual includes a coronavirus-related distribution ratably over a 3-
year period and the individual recontributes any portion of the coronavirus-related
distribution to an eligible retirement plan at any date before the timely filing of the
individual’s federal income tax return (that is, by the due date, including
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extensions) for a tax year in the 3-year period, the amount of the recontribution
will reduce the ratable portion of the coronavirus-related distribution that is
includible in gross income for that tax year. See section 4.F of this notice for
recontributions that affect income inclusion in other tax years.
Example 1. Taxpayer D receives $75,000 from a section 401(k) plan on
December 1, 2020. Taxpayer D is a qualified individual and treats the $75,000
distribution as a coronavirus-related distribution. Taxpayer D uses the 3-year
ratable income inclusion method for the distribution. Taxpayer D makes one
recontribution of $25,000 to the section 401(k) plan on April 10, 2022. Taxpayer
D files the 2021 federal income tax return on April 15, 2022. Without the
recontribution, Taxpayer D should include $25,000 in income with respect to the
coronavirus-related distribution on each of D’s 2020, 2021, and 2022 federal
income tax returns. However, as a result of the recontribution to the section
401(k) plan, Taxpayer D should include $25,000 in income with respect to the
coronavirus-related distribution on the 2020 federal income tax return, $0 in
income with respect to the coronavirus-related distribution on the 2021 federal
income tax return, and $25,000 in income with respect to the coronavirus-related
distribution on the 2022 federal income tax return.
Example 2. The facts are the same as in Example 1 of this section 4.E,
except that Taxpayer D recontributes $25,000 to the section 401(k) plan on
August 10, 2022. Taxpayer D files the 2021 federal income tax return on April
15, 2022, and does not request an extension of time to file that federal income
tax return. As a result of the recontribution to the section 401(k) plan, Taxpayer
D should include $25,000 in income with respect to the coronavirus-related
distribution on the 2020 federal income tax return, $25,000 in income with
respect to the coronavirus-related distribution on the 2021 federal income tax
return, and $0 in income with respect to the coronavirus-related distribution on
the 2022 federal income tax return.
F. Recontributions of a coronavirus-related distribution may be carried back or
forward when using the 3-year ratable income inclusion
If a qualified individual using the 3-year ratable income inclusion method
recontributes an amount of a coronavirus-related distribution for a tax year in the
3-year period that exceeds the amount that is otherwise includible in gross
income for that tax year, as described in section 4.E of this notice, the excess
amount of the recontribution is permitted to be carried forward to reduce the
amount of the coronavirus-related distribution that is includible in gross income in
the next tax year in the 3-year period. Alternatively, the qualified individual is
permitted to carry back the excess amount of the recontribution to a prior taxable
year or years in which the individual included income attributable to a
coronavirus-related distribution. The individual will need to file an amended
federal income tax return for the prior taxable year or years to report the amount
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of the recontribution on Form 8915-E and reduce his or her gross income by the
excess amount of the recontribution.
Example. Taxpayer E receives a distribution of $90,000 from his or her
IRA on November 15, 2020. Taxpayer E is a qualified individual and treats the
distribution as a coronavirus-related distribution. Taxpayer E ratably includes the
$90,000 distribution in income over a 3-year period. Without any recontribution,
Taxpayer E will include $30,000 in income with respect to the coronavirus-related
distribution on each of the 2020, 2021, and 2022 federal income tax returns.
Taxpayer E includes $30,000 in income with respect to the coronavirus-related
distribution on the 2020 federal income tax return. Taxpayer E then recontributes
$40,000 to an IRA on November 10, 2021 (and makes no other recontribution in
the 3-year period). Taxpayer E is permitted to do either of the following:
Option 1. Taxpayer E includes $0 in income with respect to the
coronavirus-related distribution on the 2021 federal income tax return. Taxpayer
E carries forward the excess recontribution of $10,000 to 2022 and includes
$20,000 in income with respect to the coronavirus-related distribution on E’s
2022 federal income tax return.
Option 2. Taxpayer E includes $0 in income with respect to the
coronavirus-related distribution on the 2021 tax return and $30,000 in income on
the 2022 federal income tax return. Taxpayer E also files an amended federal
income tax return for 2020 to reduce the amount included in income as a result of
the coronavirus-related distribution to $20,000 (that is, the $30,000 original
amount includible in income for 2020 minus the remaining $10,000 recontribution
that is not offset on either the 2021 or 2022 federal tax return).
G. Special rule for 3-year ratable income inclusion method for coronavirus-
related distributions
If a qualified individual dies before the full taxable amount of the
coronavirus-related distribution has been included in gross income, then the
remainder must be included in gross income for the taxable year that includes
the individual’s death.
H. Coronavirus-related distributions will not be treated as a change in
substantially equal periodic payments
In the case of an individual receiving substantially equal periodic
payments from an eligible retirement plan, the receipt of a coronavirus-related
distribution from that plan will not be treated as a change in substantially equal
payments as described in § 72(t)(4) merely because of the coronavirus-related
distribution.
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SECTION 5. APPLICATION OF SECTION 2202 OF THE CARES ACT TO
PLAN LOANS
This section provides guidance regarding the application of section
2202(b) of the CARES Act to plan loans, including a safe harbor under which
suspensions of payments and extensions of loan terms will be treated as
satisfying section 2202(b)(2) of the CARES Act. As described in section 2.C of
this notice, an employer is permitted to choose whether, and to what extent, to
apply coronavirus-related plan loan rules described in this section (regardless of
how coronavirus-related distributions are treated).
A. Increase in the allowable loan amount
Special rules apply to a loan made from a qualified employer plan (as
defined in § 1.72(p)-1, Q&A-2) to a qualified individual on or after March 27, 2020
(the date of enactment of the CARES Act) and before September 23, 2020. For
these loans, section 2202(b)(1) of the CARES Act changes the limits under
§ 72(p)(2)(A) of the Code. In applying § 72(p) to a plan loan, the $50,000
aggregate limit in § 72(p)(2)(A)(i) is increased to $100,000 and the rule in
§ 72(p)(2)(A)(ii) limiting the aggregate amount of loans to 50 percent of the
employee’s vested accrued benefit is increased to 100 percent of the employee’s
vested accrued benefit.
2
B. Suspension of payments and extension of term of loan
A special rule applies if a qualified individual has an outstanding loan from
a qualified employer plan on or after March 27, 2020. Section 2202(b)(2) of the
CARES Act provides that, for purposes of § 72(p), in the case of a qualified
individual with a loan from a qualified employer plan outstanding on or after
March 27, 2020, if the due date pursuant to § 72(p)(2)(B) or (C) for any
repayment with respect to the loan occurs during the period beginning on March
27, 2020, and ending on December 31, 2020, the due date shall be delayed for 1
year. In addition, any subsequent repayments of the loan shall be adjusted
appropriately to reflect the delay and any interest accruing during the delay, and
the period of delay must be disregarded in determining the 5-year period and the
term of the loan under § 72(p)(2)(B) and (C). The effect of section 2202(b)(2) of
the CARES Act is to permit a delay in certain plan loan repayments without
causing the loans to violate § 72(p)(2)(B) and (C). It does not, however, require
a delay in plan loan repayments in order to satisfy § 72(p)(2)(B) and (C). Thus,
an employer is permitted to choose to allow this delay in loan repayments under
2
The Department of Labor has advised the Department of the Treasury and the IRS that it will
not treat any person as having violated the provisions of Title I of the Employee Retirement
Income Security Act (ERISA), including the adequate security and reasonably equivalent basis
requirements in ERISA section 408(b)(1) and 29 CFR 2550.408b-1, solely because the person
made a plan loan to a qualified individual during the period beginning on March 27, 2020, and
ending on September 22, 2020, in compliance with CARES Act section 2202(b)(1) and the
provisions of this notice. See EBSA Disaster Relief Notice 2020-01.
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its plan with respect to qualified individuals, and, if it does, there will not be a
deemed distribution to those individuals under § 72(p) due to the delay. For
example, each repayment that becomes due during the period from March 27,
2020, through December 31, 2020, may be delayed for up to 1 year and then
reamortized (taking into account interest) over a period that is up to 1 year longer
than the original term of the loan. Each reamortized repayment may then be
added to other reamortized repayments and to non-reamortized repayments to
construct an overall loan reamortization schedule.
This notice provides a safe harbor for satisfying section 2202(b)(2) of the
CARES Act. Under this safe harbor, a qualified employer plan will be treated as
satisfying the requirements of § 72(p) pursuant to section 2202(b)(2) of the
CARES Act if a qualified individual’s obligation to repay a plan loan is suspended
under the plan for any period beginning not earlier than March 27, 2020, and
ending not later than December 31, 2020 (suspension period). The loan
repayments must resume after the end of the suspension period, and the term of
the loan may be extended by up to 1 year from the date the loan was originally
due to be repaid. If a qualified employer plan suspends loan repayments during
the suspension period, the suspension will not cause the loan to be deemed
distributed even if, due solely to the suspension, the term of the loan is extended
beyond 5 years. Interest accruing during the suspension period must be added
to the remaining principal of the loan. A plan satisfies these rules if the loan is
reamortized and repaid in substantially level installments over the remaining
period of the loan (that is, 5 years from the date of the loan, assuming that the
loan is not a principal residence loan, plus up to 1 year from the date the loan
was originally due to be repaid). If an employer, under its plan, chooses to
permit a suspension period that is less than the maximum suspension period
described above, the employer is permitted to extend the suspension period
subsequently, but not beyond December 31, 2020.
Example applying the safe harbor. On April 1, 2020, a participant with a
nonforfeitable account balance of $40,000 borrowed $20,000 to be repaid in level
monthly installments of $368.33 each over 5 years, with the repayments to be
made by payroll withholding. The participant makes payments for 3 months
through June 30, 2020. The participant is a qualified individual (as described in
section 1.B of this notice). The participant’s employer takes action to suspend
payroll withholding repayments, for the period from July 1, 2020, through
December 31, 2020, for loans to qualified individuals that are outstanding on or
after March 27, 2020. Because the participant is a qualified individual, no further
repayments are made on the participant’s loan until January 1, 2021 (when the
balance is $19,477). At that time, repayments on the loan resume, with the
amount of each monthly installment reamortized to be $343.27 in order for the
loan to be repaid by March 31, 2026 (which is the date the loan originally would
have been fully repaid, plus 1 year).
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The Department of the Treasury and the IRS recognize that there may be
additional reasonable, if more complex, ways to administer section 2202(b) of the
CARES Act. For example, in a plan with a suspension period beginning April 1,
2020, each repayment that becomes due during the suspension period may be
delayed to April 1, 2021 (the 1-year anniversary of the beginning of the
suspension period). After originally scheduled repayments for January through
March of 2021 are made, the outstanding balance of the loan on April 1, 2021,
including the delayed repayments with interest, may be reamortized over a
period that is up to 1 year longer than the original term of the loan.
C. Reliance on certifications
The administrator of a qualified employer plan may rely on an individual’s
certification that the individual satisfies the conditions to be a qualified individual,
and therefore qualifies for the special treatment for loans under section 2202(b)
of the CARES Act, unless the administrator has actual knowledge to the contrary
under the standard described in section 2.E of this notice. See section 2.E of this
notice for an example of an acceptable certification.
SECTION 6. PERMITTED CANCELLATION OF DEFERRAL ELECTION
UNDER NONQUALIFIED DEFERRED COMPENSATION PLAN
Under § 1.409A-3(j)(4)(viii), a nonqualified deferred compensation plan
subject to § 409A may provide for a cancellation of a service provider's deferral
election, or such a cancellation may be made, due to an unforeseeable
emergency or a hardship distribution pursuant to § 1.401(k)-1(d)(3). If a service
provider receives a distribution from an eligible retirement plan that constitutes a
coronavirus-related distribution, that distribution will be considered a hardship
distribution pursuant to § 1.401(k)-1(d)(3) for purposes of § 1.409A-3(j)(4)(viii).
As a result, a nonqualified deferred compensation plan may provide for a
cancellation of the service provider's deferral election, or such a cancellation may
be made, due to a coronavirus-related distribution described in section 1.C of this
notice. The deferral election must be cancelled, not merely postponed or
otherwise delayed.
DRAFTING INFORMATION
The principal author of this notice is Jamie Dvoretzky of the Office of the
Associate Chief Counsel (Employee Benefits, Exempt Organizations, and
Employment Taxes). For further information regarding this notice, contact Ms.
Dvoretzky at (202) 317-4102 (not a toll-free number).
