4.   Disaster-Related Relief

Table of Contents

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.

Example.

In August 2008, you received a distribution of $50,000. In 2009, you received a distribution of $125,000. Both distributions met the requirements for a qualified disaster recovery assistance distribution. If you decided to treat the entire $50,000 received in 2008 as a qualified disaster recovery assistance distribution, only $50,000 of the 2009 distribution could have been treated as a qualified disaster recovery assistance distribution.

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.

Example.

Alice received a $45,000 qualified disaster recovery assistance distribution on September 1, 2009. She files her 2009 tax return timely with Form 8930 attached. After receiving reimbursement from her insurance company for a casualty loss, Alice repays $45,000 to an IRA on March 31, 2012. She amends her 2009 tax return with a revised Form 8930 to refigure her taxable income.

Repayment of distributions if reporting under the 3-year method.   If you reported the distribution in income over the 3-year period (2009 to 2011) and you repay a portion after the due date (including extensions) for filing that 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 10, 2012, Brian repays $45,000 to an eligible retirement plan. He makes no other repayments during the 3-year period. Brian files an amended return for 2011 to reduce the $30,000 reported as income to $0, and 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 you make a repayment in 2012, the repayment may reduce the amount of your qualified disaster recovery assistance distributions that were previously included in income. You may need to file an amended return to refigure your taxable income if:

  • You elected to include all of your qualified disaster recovery assistance distributions in income for 2009 (not over 3 years) on your original return.

  • Your received a qualified disaster recovery assistance distribution in 2009 and included it in income over 3 years after the distribution was received.

You can amend your 2009, 2010, or 2011 return, if applicable, to carry the repayment back.

Example.   You received a qualified disaster recovery assistance distribution in the amount of $90,000 on October 15, 2009. You choose to spread the $90,000 over 3 years ($30,000 in income for 2009, 2010, and 2011). On July 15, 2012, you make a repayment of $45,000. Since the repayment was made within 3 years of the distribution, the repayment can be carried back to the 2009, 2010, and 2011 tax returns. In this example, more than one tax return will need to be amended since the repayment is in excess on the amount included in income for each of the three years.

  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.

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