Virus-Related Retirement Tax Breaks Are Optional, IRS Says

The Internal Revenue Service has begun interpreting the retirement tax breaks in the $2 trillion stimulus law by explaining that the relief is discretionary.

A web posting Monday addresses gray areas in the third coronavirus relief law (Public Law 116-136), known as the CARES Act, ranging from the eligibility requirements for up to $100,000 in tax-free distributions to whether plan sponsors have to adopt any of the featured policy changes.

In the latter case, the IRS specified that plan loan increases and distribution offers are meant to provide flexibility.

“An employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans,” according to the IRS FAQ. The IRS also said qualified account holders are allowed to claim virus-related benefits in next year’s tax filings “even if an employer does not treat a distribution as coronavirus-related.”

The IRS indicated there’s more to come.

“The Treasury Department and the IRS are formulating guidance on section 2202 of the CARES Act and anticipate releasing that guidance in the near future,” tax officials wrote of their regulatory agenda, adding that the pending rules would track assistance provided to taxpayers adversely affected by Hurricane Katrina.