Several tax penalties removed due to COVID-19
RAPID CITY, S.D. — Millions are out of work and are seeing lower incomes during a year where a global pandemic was front and center.
Due to mass hardship, taxes will look different for 2020.
When filing taxes for 2020 it’s important to remember that there are a few penalties that will be removed.
Prior to COVID-19, people with 401ks would face a 10% penalty and mandatory 20% withholding for taking a distribution from their 401k before the age of 59 and-a-half.
Now there are exceptions, for people that are jobless or have been forced out of work due to illness.
“If you have one of those issues you can take a distribution, up to $100,000 and you will not be charged the 10% penalty on them and there will not be the 20% mandatory withholding,” say CPA Jennie Steinmetz, with Casey Peterson.
It’s important to note that people dipping into 401ks will still have to pay income tax on the money that they take out and should set money aside for when that time comes.
Starting this month, people in the military, O-4 and below will also receive a social security deferral.
Steinmetz says, “They will no longer have the employee’s 6.2 percent social security tax withheld from their paycheck through the end of the year. However it’s also not truly a tax break in that starting in January instead of 6.2 percent withheld they will have double that.”
Meaning that these military personnel will receive a larger paycheck until the new year, but after that the paycheck will be smaller to make up for what was taken from social security.
The social security deferral may also apply to certain civilian businesses.
Steinmetz adds, “That does affect civilian jobs as well, if the employer opts into it the business has the ability to decide if they’re going to do it. If the business decides to do it for any for profit businesses, the employees don’t have a choice.”
It’s best to speak with your employer along with a CPA when it comes to managing financial aid throughout the pandemic.