Optima Tax Relief Reviews Notice 2020-50 – Guidelines for Retirement Plan Holders Who Wish to Access CARES Act Benefits
The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) offers provisions allowing persons affected by COVID-19 access to distribution and loans. In the following article, Optima Tax Relief reviews the recently released Notice 2020-50, a publication that provides guidance, and clarifies examples of qualified individuals who need assistance with access to distributions.
The Internal Revenue Service recently published new guidance for people seeking CARES Act assistance. The publication – Notice 2020-50 – more clearly defines who qualifies for distributions (a “qualified individual”). These qualifications include:
- Any individual who has received a positive diagnosis of SARS-CoV-2 (also known as the novel coronavirus or COVID-19) using a Centers for Disease Control and Prevention-approved test. Approved tests include testing kits that have been authorized by the Federal Food, Drug, and Cosmetic Act.
- Any individual who has a dependent or spouse who has received a positive diagnosis of SARS-CoV-2 using a Centers for Disease Control and Prevention-approved test.
- Anyone who has experienced financial harm resulting from their own positive diagnosis, the positive diagnosis of a dependent or spouse, or the positive diagnosis of a person living in that individual’s residence. Financial harm may be due to being quarantined; being laid off or furloughed, having employment hours reduced, or having to close down a place of business; being unable to work due to childcare obligations; having an offer of employment postponed or retracted due to the COVID-19 outbreak.
Notice 2020-50 also delineates the guidelines regarding early retirement withdrawal due to COVID-19-related hardship. The CARES Act removes the 10 percent penalty for early withdrawal for account-holders under the age of 59 ½. Account-holders are allowed to remove up to $100,000 during the 2020 calendar year (from January 1, 2020 to December 30, 2020) without being subject to the 10 percent penalty. Moreover, the 20 percent withholding tax on early distribution is waived, until retirement distributions are taken, if the account holder repays the withdrawn amount within three years.
It is important to note that employer-sponsored retirement accounts might not accept the CARES Act provisions. Account-holders should check with their plan sponsors before making early withdrawals. Additionally, the account holder will have to provide proof of a COVID-19 hardship.
For more information about the CARES Act provisions, please visit irs.gov.