4.   Disaster-Related Relief

Table of Contents

Tax Relief for Kansas Disaster Area

Special rules provided for tax-favored withdrawals, repayments, and loans from certain retirement plans for individuals who suffered economic losses as a result of the May 4, 2007, Kansas storms and tornadoes and applied to distributions received before 2009 as qualified recovery assistance distributions (defined later). While qualified recovery assistance distributions cannot be made after 2008, the special rules explain how much of a qualified distribution has to be included in income after 2008, and when an amended return must be filed to reduce the amount of a qualified distribution previously included in income as a result of a repayment after 2008.

Qualified Recovery Assistance Distribution

Except as provided below, a qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan if all of the following apply.

  1. The distribution was made after May 3, 2007, and before January 1, 2009.

  2. Your main home was located in the Kansas disaster area on May 4, 2007. For a definition of main home, see Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes.

  3. You sustained an economic loss because of the storms and tornadoes. Examples of an economic loss include, but are not limited to:

    1. Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;

    2. Loss related to displacement from your home; or

    3. Loss of livelihood due to temporary or permanent layoffs.

If (1) through (3) above apply, you could have generally designated any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified recovery assistance distribution, regardless of whether the distribution was made on account of the storms and tornadoes. Qualified recovery assistance distributions were permitted without regard to your need or the actual amount of your economic loss.

The total of your qualified recovery assistance distributions from all plans was limited to $100,000. If you had distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you could have allocated the $100,000 limit among the plans any way you chose.

A reduction or offset after May 3, 2007, of your account balance in an eligible retirement plan in order to repay a loan could also have been designated as a qualified recovery assistance distribution.

Repayment of Qualified Recovery Assistance Distributions

If you choose, you generally can repay any portion of a qualified recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Also, you can repay a qualified recovery assistance distribution made on account of a hardship from a retirement plan. However, see Exceptions below for qualified recovery assistance distributions you cannot repay.

You have 3 years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover.

Exceptions.   You cannot repay the following types of distributions.

  1. Qualified recovery assistance distributions received as a beneficiary (other than a surviving spouse).

  2. Required minimum distributions.

  3. Periodic payments (other than from an IRA) that are for:

    1. A period of 10 years or more,

    2. Your life or life expectancy, or

    3. The joint lives or joint life expectancies of you and your beneficiary.

Amending Your Return

If you make a repayment in 2011, the repayment may reduce the amount of your qualified recovery assistance distributions that were previously included in income. You can file an amended return to refigure your taxable income if either of the following applies.

  • You elected to include all of your qualified recovery assistance distributions in income for 2008 (not over 3 years) on your original return.

  • You received a qualified recovery assistance distribution in 2008 and included it in income over 3 years. You can only make a repayment if it is made within 3 years after the distribution was received. You can amend your 2008, 2009, or 2010 return, if applicable, to carry the repayment back.

File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.

Tax Relief for Midwestern Disaster Areas

See Tables 1 and 2 in Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas, for a list of the Midwestern disaster areas and the applicable disaster dates.

Special rules provided for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the Midwestern severe storms, tornadoes, or flooding. While qualified disaster recovery assistance distributions cannot be made after 2009, the special rules explain how much of a qualified distribution has to be included in income after 2009, and when an amended return must be filed to reduce the amount of a qualified distribution previously included in income as a result of a repayment after 2009.

If you receive a qualified disaster recovery assistance distribution, it is taxable but is not subject to the 10% additional tax on early distributions. However, the distribution is included in income ratably over 3 years unless you elect to report the entire amount in the year of distribution. You can repay the distribution and not be taxed on the distribution. See Qualified Disaster Recovery Assistance Distribution, later.

Form 8930, Qualified Disaster Recovery Assistance Retirement Plan Distributions and Repayments, is used to report qualified disaster recovery assistance distributions and repayments.

For information on other tax provisions related to these storms, tornadoes, or flooding, see Publication 4492-B.

Qualified Disaster Recovery Assistance Distribution

A qualified disaster recovery assistance distribution is any distribution you received from an eligible retirement plan if all of the following apply.

  1. The distribution was made on or after the applicable disaster date and before January 1, 2010.

  2. Your main home was located in a Midwestern disaster area on the applicable disaster date. For a definition of main home, see the Form 8930 instructions.

  3. You sustained an economic loss because of the severe storms, tornadoes, or flooding and your main home was in a Midwestern disaster area on the applicable disaster date. Examples of an economic loss include, but are not limited to:

    1. Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;

    2. Loss related to displacement from your home; or

    3. Loss of livelihood due to temporary or permanent layoffs.

If (1) through (3) above apply, you could have generally designated any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified disaster recovery assistance distribution, regardless of whether the distribution was made on account of the severe storms, tornadoes, or flooding. Qualified disaster recovery assistance distributions were permitted without regard to your need or the actual amount of your economic loss.

A reduction or offset (on or after the applicable disaster date) of your account balance in an eligible retirement plan in order to repay a loan could also have been designated as a qualified disaster recovery assistance distribution.

Distribution limit.   The total of your qualified disaster recovery assistance distributions from all plans was limited to $100,000. If you had distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you could have allocated the $100,000 limit among the plans any way you chose.

Repayment of Qualified Disaster Recovery Assistance Distributions

If you choose, you generally can repay any portion of a qualified disaster recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Also, you can repay a qualified disaster recovery assistance distribution made on account of a hardship from a retirement plan. However, see Exceptions, later, for qualified disaster recovery assistance distributions you cannot repay.

You have 3 years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. See Form 8930 for more information on how to report repayments.

Repayment of distributions if reporting under the 1-year election.   If you chose to include all of your qualified disaster recovery assistance distributions received in a year in income for that year and then repay any portion of the distributions during the allowable 3-year period, the amount repaid will reduce the amount included in income for the year of distribution. If the repayment is made after the due date (including extensions) for your return for the year of distribution, you will need to file a revised Form 8930 with an amended return. See Amending Your Return , later.

Repayment of distributions if reporting under the 3-year method.   If you are reporting the distribution in income over the 3-year period and you repay any portion of the distribution to an eligible retirement plan before filing your 2011 tax return by the due date (including extensions) for that return, the repayment will reduce the portion of the distribution that is included in income in 2011. If you repay a portion after the due date (including extensions) for filing your 2011 return, the repayment may be carried back to reduce the amount included in income for the year to which it is carried.

Example.   Brian received a $90,000 qualified disaster recovery assistance distribution from his pension plan on October 15, 2009. He did not elect to include the entire distribution in his 2009 income. Without any repayments, he would include $30,000 of the distribution in income on each of his 2009, 2010, and 2011 returns. On October 30, 2011, Brian repays $45,000 to an eligible retirement plan. He makes no other repayments during the 3-year period. Brian includes $0 in income on his 2011 return and files an amended return for 2010 to reduce the amount previously reported in income to $15,000 ($30,000 - $15,000).

Exceptions.   You cannot repay the following types of distributions.

  1. Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse).

  2. Required minimum distributions.

  3. Periodic payments (other than from an IRA) that are for:

    1. A period of 10 years or more,

    2. Your life or life expectancy, or

    3. The joint lives or joint life expectancies of you and your beneficiary.

Amending Your Return

If after filing your original return, you make a repayment, the repayment may reduce the amount of your qualified disaster recovery assistance distributions that were previously included in income. Depending on when a repayment is made, you may need to file an amended tax return to refigure your taxable income.

If you make a repayment by the due date of your original return (including extensions), include the repayment on your amended return.

If you make a repayment after the due date of your original return (including extensions), include it on your amended return only if either of the following apply.

  • You elected to include all of your qualified disaster recovery assistance distributions in income in the year of the distributions (not over 3 years) on your original return.

  • The amount of the repayment exceeds the portion of the qualified disaster recovery assistance distributions that are includible in income for 2011 and you choose to carry the excess back to your 2010 or 2009 tax return.

Example.   You received a qualified disaster recovery assistance distribution in the amount of $90,000 on September 15, 2009. You choose to spread the $90,000 over 3 years ($30,000 in income for 2009, 2010, and 2011). On October 15, 2011, you make a repayment of $45,000. For 2011, none of the qualified disaster recovery assistance distribution is includible in income. The excess repayment of $15,000 can be carried back to 2010.

  File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.

Prev  Up  Next
  Home  

More Online Publications