How to enter COVID-19 related retirement distributions in the software
Due to the pandemic the IRS is giving those taxpayers affected by COVID-19 a couple 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 may exclude the 10% early withdraw penalty.
In order to complete this exclusion you must do the following:
1. Enter code "12" in the Penalty Exception Code field, located on the Form 1099-R
*this code will apply the exception to the early withdrawal penalty automatically
Also, the IRS give taxpayers the option to spread the taxable portion over a 3 year period to help those affected by COVID-19.
In order 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 Coronavirus-Related Distribution area at the bottom of Form 1099-R
*this will automatically allocate the taxable portion over a 3 year period (review Form 8915-E, once you enter the distribution for correctness)
How to calculate EITC based off the previous year's Earned Income (COVID Response)
Note: 2020 income must be lower than 2019 income in order to take this election.
Those families that received less income in 2020 because of the pandemic will have the opportunity to calculate their current year Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) based off of last year's earned income.
Follow the instructions below to correctly enter the previous year's earned income amount on the current year return:
Step 1
Verify the correct amount of earned income from the previous year's tax return (Form 1040)
Step 2
Select the Form 1040 (attached forms list) and navigate to line 27, Earned income credit (EIC)
Step 3
Complete the form underneath line 27 correctly, by marking the box and entering the previous year's earned income in the correct field (see below)
Step 4
Done (See the image below for the difference from the image above. The image below shows a higher EIC amount and an additional ACTC amount.
Note: 2020 income must be lower than 2019 income in order to take this election.