My client received a Covid-related early distribution from her retirement plan (F8915-e ) How do I get ProConnect to spread the income over 3 years for WI as for federal?

[littlebluepengui]

I completed Form 8915-E in ProConnect, and the federal return properly shows 1/3 of the distribution and no penalty for the early withdrawal

[IRonMaN]

Does WI allow you to do that?  Did they conform to the federal treatment?

[littlebluepengui]

Thanks so much for your response.  I am trying to understand whether Wisconsin permits claiming the Coronavirus-related distribution over three years or not.  The following is from the Wisconsin DOR website, but it is not clear to me whether this is in the context of the state return, or if it is just a reiteration of the federal guidelines:

Does the early withdrawal penalty apply for coronavirus-related withdrawals, as provided in sec. 2202 of the CARES Act, if the amount of the distribution from the retirement plan isn't repaid within three years?

There is no penalty for qualified withdrawals if the amount is not recontributed to the retirement account. The amount of the withdrawal is taxed over three years, unless an election is made to include the entire amount in the taxable year of withdrawal. However, if the amount is recontributed to the retirement account within those three years, it is not taxable.

[Terry53029]

 It seem like we can't use the 3 years if taken in 2020, but the Irs says this: 

Coronavirus-related distributions. A coronavirus-related distribution is a retirement plan distribution that was made:
1. In 2020 before December 31, 2020;

This is from WI dept of revenue:

c. The provisions of federal public laws that directly or indirectly affect the Internal Revenue Code
apply for Wisconsin purposes at the same time as for federal purposes, except that the following
changes first apply for taxable years beginning after December 31, 2020:

Section 202(a), (b), and (c) relating to withdrawals from qualified retirement plans for
purposes of qualified disasters

I don't have any clients that are affected, but if I do will have to call WI DOR to clarify

[littlebluepengui]

Thank you.  I have already contacted the Wisconsin DOR, and the agent was not very helpful.

[qbteachmt]

These from the WI DOR confirm conformity:

"Will Wisconsin accept the new federal Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments, relating to COVID-19 pandemic distributions?

Yes. No additional Wisconsin form is required.​​​

Does the early withdrawal penalty apply for coronavirus-related withdrawals, as provided in sec. 2202 of the CARES Act, if the amount of the distribution from the retirement plan isn't repaid within three years?

There is no penalty for qualified withdrawals if the amount is not recontributed to the retirement account. The amount of the withdrawal is taxed over three years, unless an election is made to include the entire amount in the taxable year of withdrawal. However, if the amount is recontributed to the retirement account within those three years, it is not taxable.

May a taxpayer elect to pay tax on a coronavirus-related withdrawal in the year of the withdrawal instead of over three years?

Yes. A taxpayer may elect to pay the tax all in the year of the withdrawal instead of over three years. However, if the amount is recontributed to the retirement account within those three years, it is not taxable."

[qbteachmt]

I found your conformity law here:

https://www.revenue.wi.gov/Pages/TaxPro/2020/WIAdoptCARESAct.aspx

[littlebluepengui]

Thanks, I interpreted that as you did; that the federal principles apply at the Wisconsin level as well, i.e. no penalty on early withdrawal and ability to report income over three years, but why is the full amount showing up on the 2020 Wisconsin return in ProConnect?  The federal return shows 1/3 of the distribution income as indicated on Form 8915-E; however, the Wisconsin return is showing 100% of the distribution income on the Wisconsin 2020 return.  How can this be modified?  It is for this reason that I am doubting my interpretation that the recognition of the distribution income over three years applies at the Wisconsin level as it does at the federal level.

[qbteachmt]

"It is for this reason that I am doubting my interpretation that the recognition of the distribution income over three years applies at the Wisconsin level as it does at the federal level."

I think you are doubting at the wrong place. I gave the link to your Law. Did you go to the link and read it:

On March 27, 2020, Public Law 116-136, Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted. Pursuant to sec. 71.01(7n), Wis. Stats., the following retirement plan provisions automatically apply for Wisconsin purposes.

• Section 2203 – relating to the temporary waiver of required minimum distribution rules for certain retirement plans and accounts
• Section 3608 – relating to the extension of time to make minimum required contributions to single-employer defined benefit pension plans
• Section 3609 – relating to eligibility of a cooperative and small employer charity pension plan

On April 15, 2020, the Governor signed 2019 Wisconsin Act 185, which adopts the following tax provisions from Division A of the CARES Act. These provisions apply for Wisconsin tax purposes at the same time as for federal income tax purposes.

• Section 1106 – relating to the exclusion from income for the cancellation of small business loans
• Section 2202 – relating to the waiver of penalties for early withdrawals from qualified retirement plans
• Section 2204 – relating to an above-the-line deduction for up to $300 of charitable cash contributions
• Section 2205 – relating to increased limitations on charitable contribution deductions
• Section 2206 – relating to an exclusion from income for payments an employer makes for an employee's student loans
• Section 2307 – relating to the classification of qualified improvement property for depreciation purposes

"Section 2202(a) of the CARES Act provides for special tax treatment for a coronavirus-related distribution. The section provides an exception to the 10% additional tax under § 72(t) of the Code (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs), allows the distribution to be included in income ratably over 3 years, and provides that the distribution will be treated as though it were paid in a direct rollover to an eligible retirement plan if the distribution is eligible for tax-free rollover treatment and is recontributed to an eligible retirement plan within the 3-year period beginning on the day after the date on which the distribution was received."

[littlebluepengui]

Thank you, and yes, I read it.  Do you have thoughts about the reason the Wisconsin State return is showing 100% of the coronavirus distribution in 2020 rather than 1/3 of the coronavirus distribution in 2020?