IRS Revenue Notice 2020-50 Provides Guidance On Coronavirus Related Distributions

As all should be aware of by now, on March 27, 2020, the President signed the Coronavirus, Aid, Relief, and Economic Security (CARES) Act into law. This legislation provides relief for those suffering financially and physically from the COVID-19 pandemic. Friday, June 19, 2020, the IRS issued Notice 2020-50 (the “Notice”), which provides expanded guidance on Coronavirus-Related Distributions (“CRDs”) and the CARES participant loan rules.

In today’s EJReynolds Blog, we will focus on the guidance on CDR’s specifically. Loan provisions are beyond the scope of this article.

Expanded Definition of a Qualified Individual

The original language of the CARES Act defined Qualified Individuals (“QIs”), i.e., those that may take advantage of the liberalized distribution and loan rules, to be:

  • A participant who is diagnosed with the virus.
  • A participant whose spouse or dependent is diagnosed with the virus; or
  • A participant who has suffered financial loss from the pandemic because he or she:
    • Was laid off, furloughed, quarantined, or had reduced hours.
    • Cannot work due to the unavailability of childcare because of the pandemic; or
    • Owns or operates a business that has had to close its doors or reduce hours; and
  • An individual with other factors as determined by the Secretary of Treasury.

The last item allows the IRS to make changes as deemed necessary, and the Notice grants relief not only to these individuals, but adds the following categories to the definition of QI:

  • A participant whose pay or self-employment income is reduced, or who has had a job offer rescinded or a new job’s start date delayed due to the pandemic.
  • A participant whose spouse or a member of his/her household has suffered the following financial effects due to the pandemic:
    • Layoff, furlough, quarantine, reduced hours, or reduced pay or self-employment income.
    • Cannot work due to childcare unavailability; or
    • Has had a job offer rescinded or the start date of a new job delayed.
  • A business owned or operated by the participant’s spouse or a member of the participant’s household has closed or reduced hours.

For this purpose, a “member of the household” is someone who shares the QI’s principal residence. Presumably, this could include a significant other, roommate, other relative, or anyone else with whom the individual is sharing a home. This expanded definition grants the QI Status to many individuals who may not have been directly impacted by the virus, but still have suffered financially.

Guidance for Employer-Sponsored Retirement Plans

The Notice clarifies that the CRD and CARES Act loan provisions are optional. A Plan Sponsor may elect to implement the provisions in full, in part or not at all. Regardless of adoption, participant distributions of most types may be treated as CRDs on their personal tax return, if the participant meets the necessary requirements, and the participant may receive a refund if the mandatory 20% withholding was in excess of the actual amount owed.

Employer Reliance on Employee Certification

The Notice emphasizes that the Plan Sponsor can rely on the participant’s self-certification that he or she is a Qualified Individual, unless the Sponsor has actual knowledge to the contrary. The IRS notes that “actual knowledge” does not mean the Administrator must take additional steps to determine whether the participant meets the requirements. For this purpose, the IRS provided a sample self-certification that is deemed to be acceptable. The Certification simply provides “I certify that I meet one of the following conditions …” and then outlines the categories of QIs. There is no need for the participant to specify which category applies to him/her. The lack of the requirement to certify the specific reason why someone is qualified may also avoid any privacy concerns about asking about the QI’s health.

The Notice goes into significant detail about the tax reporting and payment rules relating to CRDs.

What Is considered a Coronavirus Related Distribution?

The Notice clarifies that a CRD is almost any distribution to a QI (not to exceed $100,000) made during 2020. It is possible that the employer and the participant may have different thoughts about whether a given distribution is a CRD. While a Plan Sponsor may choose not to amend its plan to provide for CRDs, the participant is not obligated on his or her tax reporting by the way in which the plan treated the distribution. If the participant meets the definition of a Qualified Individual, the QI can designate any distribution amount as a CRD for his or her taxes. These are discussed below.

From the Employer’s Perspective

A plan must report any CRD of Form 1099-R as taxable income and place the appropriate distribution code in Box 7 (even if the amount is recontributed). The distribution will either be reported as a Code 2 (early distribution, exception applies); or (2) Code 1 (early distribution, no known exception). The first option is more consistent with an employer that recognizes that the distribution is a CRD. If a plan acknowledges that the distribution is a CRD, it is not an eligible rollover distribution from the plan’s perspective (even though the participant can roll it over). This means that the amount is not subject to the 20% mandatory withholding (waivable 10% withholding applies), and the participant does not need to receive a “Special Tax Notice Regarding Plan Payments”.

Participant Designations of CRDs

A QI designates a distribution as a CRD by reporting the distribution on his or her 2020 tax return and filing Form 8915-E (which the IRS indicates will be available before the end of this year). A CRD reported on Form 8915-E qualifies for the waiver of the 10% premature distribution tax under Code section 72(t), the spreading of the income from the distribution over three years (if desired), and the ability to recontribute any portion of the distribution to an eligible retirement plan within three years and have it treated like a nontaxable trustee-to-trustee transfer of the funds. Form 8915-E is also used to report amounts includible in income or recontributed in years after 2020.

The Three-Year Spread of Income

The QI may choose to include the total income from the CRD in 2020 (i.e., when received) or ratably over 2020, 2021, and 2022. Once the QI timely files his or her 2020 taxes reflecting one of those two methods, it cannot later be changed. All CRDs received must be treated the same for this purpose.


Amounts recontributed prior to the tax return due date (including extensions) for a given year may be reflected on that return. For example, a participant who recontributes a CRD on or before his/her extended 2020 tax return due date of October 15, 2021, may reflect the reduction in taxable income from the recontribution on that return. IRA owners are normally permitted to make only one IRA rollover per calendar year. The recontribution of CRDs to an IRA, notwithstanding the fact that they are to be treated for tax purposes as rollovers, does not count against that one-per-year limitation.

Recontributions are treated as follows for tax purposes:

  1. 1-year income inclusion method, recontribution made by that year’s tax return due date: The entire CRD is shown as income in 2020; the entire repayment is shown on Form 8915-E for 2020. The QI recognizes no taxable income (or only that amount of CRD more than the recontribution) for 2020 from the CRD.
  2. 1-year income inclusion method, recontribution made in a later year: The entire CRD is shown as income in 2020. When the recontribution is made, the taxpayer must file an amended 2020 return with attached Form 8915-E, and the income from the CRD on the 2020 return will be adjusted accordingly.
  3. 3-year income inclusion method, recontribution of all or a portion before 2020 taxes are filed: The 2020 tax return will reflect taxable income equal to one-third of the CRD received during the year (up to the $100,000 maximum). Form 8915-E that is filed with the 2020 return will reflect any recontribution up to the tax return due date. If the recontribution equals or exceeds the amount of income for 2020, there will be no net taxable income from the CRD in 2020. If the recontribution exceeds the 2020 income, the offset to income will be applied in 2021 (or, if necessary, 2022).
  4. 3-year income inclusion method. Recontribution made in years after 2020 taxes are filed: If repayments occur after income from CRDs has been claimed (and appropriate taxes paid), the QI has a choice of carrying the income offset forward or backwards.

The Notice also included guidance on expanded loan features under the CARES Act, which we will dive into more in future writings. If you have specific questions related to Coronavirus Related Distributions, please reach out to your Plan Consultant at EJReynolds, and may you continue to keep healthy and safe.

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