The IRS released Notice 2020-50 regarding section 2202 of the CARES Act which provides for favorable tax treatment of coronavirus-related distributions for qualified individuals with respect to distributions from eligible retirement plans. The notice includes an expanded definition of ‘qualified individuals’ to take into account additional factors, such as reductions in pay, rescission of job offers, and delayed start dates with respect to an individual as well as adverse financial consequences to an individual arising from the impact of coronavirus (COVID-19) on the individual’s spouse or household member. The expanded definition of a qualified individual includes anyone who:

  • is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
  • experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
    • 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;
    • closing or reducing hours of a business that they own or operate due to COVID-19;
    • having pay or self-employment income reduced due to COVID-19; or
    • having a job offer rescinded or start date for a job delayed due to COVID-19.

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