IRS headquarters IRS headquarters in Washington. (Photo: Allison Bell/ALM)

The IRS on Friday released details on expanded categories of individuals eligible for enhanced access to retirement distributions and loans under the CARES Act.

Notice 2020-50 includes expanding the categories of individuals eligible for these types of distributions and loans (referred to as “qualified individuals”) and provides guidance and examples on how qualified individuals will reflect the tax treatment of these distributions and loans on their federal income tax filings.

As authorized under the CARES Act, Notice 2020-50 expands the definition of who is a qualified individual to take into account additional factors such as reductions in pay, rescissions of job offers, and delayed start dates with respect to an individual, as well as adverse financial consequences to an individual arising from the impact of the COVID-19 coronavirus on the individual’s spouse or household member.

The CARES Act provides that qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between Jan. 1 and Dec. 30, 2020.

(Related: Swedroe, Kotlikoff Warn Advisors to Prepare for Higher Taxes After Pandemic)

As the notice explains, a coronavirus-related distribution is not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½.

A coronavirus-related distribution can also be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution, the notice states.

The CARES Act provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms.

“In particular, plans may suspend loan repayments that are due from March 27 through Dec. 31, 2020, and the dollar limit on loans made between March 27 and Sept. 22, 2020, is raised from $50,000 to $100,000,” according to the notice.

As expanded under Notice 2020-50, a qualified individual is anyone who:

  • is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
  • experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):

– being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19; – being unable to work due to lack of childcare due to COVID-19; – closing or reducing hours of a business that they own or operate due to COVID-19; – having pay or self-employment income reduced due to COVID-19; or – having a job offer rescinded or start date for a job delayed due to COVID-19.

The notice also clarifies that employers can choose whether to implement these coronavirus-related distribution and loan rules, and notes that qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren’t changed.

(Related: Swedroe, Kotlikoff Warn Advisors to Prepare for Higher Taxes After Pandemic)