TAMPA, Fla. — If you fell on hard times during the pandemic last year and had to draw money out of your retirement early, the IRS is giving you a one-time break.
What You Need To Know
- IRS waiving penalty for early retirement withdrawals in 2020
- Normally you will get hit with a 10% penalty tax for withdrawing before the age of 59
- You can file your retirement withdrawals in a lump sum or broken up over the next 3 years
- IRS has also extended the tax deadline from April 15 to May 17
Usually, the government will hit you with a 10% penalty tax for early withdrawals on retirement before the age of 59.
That penalty is being waived for 2020, but depending on how much you took out, tax experts are warning you to be careful how you file the payout.
For 2020, retirement withdrawals can be filed in a lump sum like normal years, or they can be broken up over the next three years.
For example, if you withdrew $18,000, you could report the entire amount for the tax year 2020, or report $6,000 per year for tax years 2020, 21, and 22.
How you file any retirement withdrawals will impact your taxable income for 2020, as well as impact your adjusted gross income which would be used for any future stimulus payouts.
Some Democrats have proposed another direct stimulus to taxpayers later this year.
"All the new legislation that has come in has really put a lot of moving parts there for people to have to navigate through," said Steve Ribble, a 15-year tax professional with Guardian Accounting Group in Tampa.
"So now more than ever I think it pays to have a professional helping you, that guides you through this process."
With all the changes in tax filing, the IRS has extended the tax deadline from April 15 to May 17 this year.