corona virus distribution payback

[Dave T]

It may be a moot point but just wanted to double check.

T/P took $40K  IRA distribution due to covid in 2020 and elected three year payback. 1099R showed $4K federal tax withheld which i included on 2020 return. Now, doing 2021 return she owes significantly more due to no tax withheld.   I obviously should have checked this last year but could the withheld amount be spread  over the three years as well?

Thank you.

[grandmabee]

Yes,  you could have applied any refund to 2021. But not exactly the withholding spread 3 years just any refund available.

[Dave T]

Unfortunately no refund to apply from 2020. She has large amount of self employment in 2021 and thus facing a fairly large tax bill.

[Lion EA]

Get her set up for 2022 ES so it doesn't happen again.

You mention that she's going to pay it back over three years. Did she pay any back during 2021? Have her pay it back soon, so you can amend the prior years.

[Dave T]

I had given her the estimated vouchers for 2021 and when meeting with her the other day I asked about her estimated payments and her answer was I didn't make any.  Oh well what can you do. We can just suggest.

[Pacun]

5 hours ago, Lion EA said:

Get her set up for 2022 ES so it doesn't happen again.

You mention that she's going to pay it back over three years. Did she pay any back during 2021? Have her pay it back soon, so you can amend the prior years.

When people get a huge bill from the IRS, most likely they will not have money this year to pay the bill and pay estimated taxes.

The issue is that people don't have money this year to pay the bill, so for sure they don't have money to send back to the 401k plan, which will be 3 times higher than the bill.