The Internal Revenue Service (“IRS”) recently released a set of much anticipated FAQs, answering some of the questions that have arisen since the CARES Act was signed into law. The following are brief highlights of the FAQs:

  • Future Guidance. Both the IRS and Treasury Department anticipate releasing further CARES Act guidance in the near future. In the meantime, the IRS has specifically indicated that the tax treatment of distributions and loans will be similar to those provisions applied to the victims of Hurricane Katrina under Notice 2005-92.
  • Qualified Individuals. The IRS emphasized that it may expand who is eligible to be a Qualified Individual in future guidance. The guidance also affirms that employers may rely on an employee’s self-certification as it relates to his or her qualified status, unless the employer has information to the contrary. There is no need for an employer to verify an employee’s self-certification, but should keep records of all self-certifications.
  • Taxation of Distributions. Plan participants can elect either to have their Coronavirus-related Distribution (“CRD”) or other eligible distribution allowed under their plan to be taxed over a 3-year period, rather than pay the full tax in the year of the distribution. Either option must be reported on the individual’s tax return as well as IRS Form 1099-R. Note, the 10% additional tax normally applied to early distributions does not apply to CRDs.
  • Distribution Repayment. Individuals wishing to repay a CRD may do so by using IRS Form 8915-E, which will be made available at a later date. If an individual repays the distribution, he or she may claim a refund of the tax attributable to a CRD that he or she included in income prior to the repayment date.
  • Loans. The CARES Act increased the maximum loan amount and allowed loan repayments due between March 27, 2020 and December 31, 2020 to be suspend for up to one year. The FAQs specify that the loan increase applies to loans made between March 27, 2020 and September 22, 2020, not September 23 as previously thought. Following the suspension period, the loan must be re-amortized to reflect the interest accruing during the suspension period. It is important to note that the payment suspension is not mandatory and the delayed repayments are required to begin in January of 2021.
  • Notes for Money Purchase Plans and Defined Benefit Pension Plans. The FAQs make it clear that the relaxed restrictions on CRDs do not apply to money purchase plans or defined benefit plans, meaning that normal distribution rules apply. However, the beneficial tax treatment mentioned previously does apply. In addition, a pension plan cannot make a distribution under a distribution form such as a CRD that is not a qualified joint and survivor annuity without spousal consent.

Nyhart will continue to monitor the situation as it relates to retirement plans as additional guidance is expected in the coming weeks and months. In the meantime, if you have any questions, please contact your Nyhart consultant.