Levine, Jacobs & Company, LLC, Senior Member Offers Advice On Special Rules To Treat A 401K COVID Withdrawal On Tax Returns
Levine, Jacobs & Company, LLC, Senior Member Offers Advice On Special Rules To Treat A 401K COVID Withdrawal On Tax Returns.
- Newark, NJ (1888PressRelease) March 17, 2021 - Michael H. Karu, CPA/CFF, Senior Member, Levine, Jacobs & Company, LLC., was quoted on NJMoneyHelp.com/NJ.com, where he advised a reader who took a $33,500 Cares Act withdrawal in 2020. The reader had 20% federal and 10% state tax withheld and was planning to spread the taxes over three years. He is filing married jointly and the total household income will be roughly $180,000, not including the 401(k) withdrawal. They have two kids and rent a home, and work at home so they are inquiring about additional deductions as well as how to treat the 401(k) withdrawal.
“You could take up to $100,000 and pay the taxes owed over three years if you qualify, rather than pay it all in one year,” Karu stated.
Karu advised of other rules that allow for the distribution to be repaid to the plan. However, if that is not completed in 2020, then no less than one-third of the distribution on your 2020 tax return needs to be included.
“If you repay it in 2022, then you would be required to include no less than one-third in each of the 2020 and 2021 tax years, and amend both years.” He continued, “Any tax withheld would be reported on your 2020 income tax return.”
Karu offered advice for cash-basis taxpayers, who are taxed in the year in which the distribution is taken. “Having federal and state income tax withheld at the time of the distribution doesn’t change the taxability of the distribution, it just lessens the amount you would owe when you file your return.”
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Michael H. Karu, CPA/CFF, is a senior member of Levine, Jacobs & Company, LLC, a Livingston-based accounting and consulting firm. He is qualified by the Superior Court of New Jersey, Family Part, as an expert witness and as an authority on business valuations, specifically for closely held or family-owned businesses. Additionally, he is a Certified Divorce Mediator and is Certified in Financial Forensics.
Karu received his B.S. degree in Business Administration from The Ohio State University and holds professional memberships in the American Institute of Certified Public Accountants, the AICPA Tax Division and the AICPA Business Valuation, Forensics and Litigation Services Section, as well as the NJ State Society of CPAs. Karu is a published author of numerous articles seen in trade and consumer publications and has been a guest on radio and television shows.
Levine, Jacobs & Company, L.L.C. maintains memberships in the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants. The firm prides itself on its teamwork abilities where “every account receives the talent and expertise of the whole firm.”
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