IRS Notice 2020-50: A CARES Act Update

IRS Notice 2020-50: A CARES Act Update

On Thursday, June 19, 2020, the IRS released Notice 2020-50. The notice provides guidance relating to the application of section 2202 of the CARES Act for qualified individuals and eligible retirement plans.

Under section 2202 of the CARES Act, qualified individuals receive favorable tax treatment with respect to distributions from eligible retirement plans that are coronavirus-related distributions

A coronavirus-related distribution is not subject to the 10% additional tax under §72(t) of the Internal Revenue Code (Code) (including the 25% additional tax under §72(t)(6) for certain distributions from SIMPLE IRAs), generally is included in income over a 3-year period, and, to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan within a 3-year period, will not be included in income.

The CARES Act grants the Secretary the right to issue additional guidance to expand the definition of Qualifying Individuals. Accordingly, Notice 2020-50 has expanded the category of Qualifying Individual to include an individual who experiences adverse financial consequences as a result of at least one of the following:

  • the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • the individual’s spouse or a member of the individual’s household* 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childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

*For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

Section 2202 of the CARES Act also increases the allowable plan loan amount under §72(p) of the Code and permits a suspension of payments for plan loans outstanding on or after March 27, 2020, that are made to qualified individuals. Notice 2020-50 also offers clarification on loan repayment delays and tax treatment of coronavirus-related distributions.

The guidance in this notice is intended to assist employers and plan administrators, trustees and custodians, and qualified individuals in applying section 2202 of the CARES Act, including by providing guidance on how plans may report coronavirus-related distributions and how individuals may report these distributions on their individual federal income tax returns.

The CARES Act, passed March 27, 2020, allows certain qualified retirement plans to adopt special, temporary, coronavirus-related distribution and loan provisions. Learn more from Uniglobal on this Act.