CARES Act Federal tax withholding
How will federal tax withholding be reported on the 2020 tax return due to a CRD? For example, assume a taxpayer took a $100,000 CRD from their IRA, requested 20% federal tax withholding, and receives net $80,000. Will the entire $20,000 tax withheld be reported on their 2020 or will there be a way to spread out the $20,000 withheld over a three-year period?
Permalink Submitted by David Mertz on Wed, 2020-10-07 18:10
The entire tax withholding will be credited on the 2020 tax return. Any overpayment of taxes for 2020 can be applied to 2021 by so designating on your 2020 tax return. Any overpayment of taxes for 2021 can be applied to 2022 by so designating on your 2021 tax return. If you do end up getting any overpayment as refund paid to you, you can make estimated tax payments. CRDs are exempt from the 20% mandatory tax withholding on eligible rollover distributions from qualified retirement plans, so you can request that some other amount be withheld for 2020.
Permalink Submitted by Peter Thomann on Wed, 2020-10-07 20:15
Thanks DMx, very helpful.