The IRS has issued guidance for the CARES Act's impact on retirement plans, outlining the amount and timing of distributions as well as describing employers' responsibilities.
In a notice posted May 4 on its website, the IRS defined a coronavirus-related distribution as one that has been or will be made from Jan. 1 through Dec. 30 this year by a "qualified individual" for "up to an aggregate limit of $100,000 from all plans and IRAs."
The IRS sets guidelines for determining a qualified individual. It can be a someone who has been diagnosed with the virus SARS-CoV-2 or with the COVID-19 disease. The diagnosis must be made via a test approved by the Centers for Disease Control and Prevention. A qualified individual also can be someone whose spouse or dependent is diagnosed.
The IRS also defined a qualified individual as someone who was quarantined, furloughed, laid off or had work hours reduced due to the coronavirus. A person could also qualify if the coronavirus prevented working due to lack of child care. Another qualification is a virus-caused loss of a business that a person owns or reduced hours.
The 10% additional tax on early distributions does not apply to any coronavirus-related distribution, the IRS said. The reporting of distributions as income can be spread over three years for federal tax reporting purposes, or the entire amount can be reported in the year the distribution was made, the IRS said.
An employer has the option of adopting the distribution and loan rules in the law, the IRS said. An employer also can choose "whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans" under the law's terms.
However, even if an employer does not treat a distribution as coronavirus-related, "a qualified individual may treat a distribution that meets the requirements to be a coronavirus-related distribution" on the individual's federal income tax return, the IRS said.