Among other things, the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers tax relief if you take a lump-sum payment in cash for a Coronavirus-related reason.

Assistance is available for individuals who are diagnosed with COVID-19 or whose spouse or dependent is diagnosed with the disease as well as for those who are negatively affected financially due to quarantine, furlough, layoff, work hour reduction or who can’t work due to lack of child care.

The CARES Act includes a provision that affects the taxability of lump-sum distributions such as a refund of employee contributions, BackDROP payments, and Cash Out payments. This only affects the taxability of these payments. It does not modify any MOSERS rules related to the payments.

On any of these types of lump-sum payments, a member can indicate that the payment is a Coronavirus-related distribution based on any of the following reasons:

  1. The member was diagnosed with COVID-19,
  2. The member’s spouse or dependent was diagnosed with COVID-19,
  3. The member has experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, had work hours reduced, been unable to work due to lack of child care due to COVID-19, or closed a business due to COVID-19.

If the payment is a Coronavirus-related distribution:

  • The 10% early withdrawal penalty (for those younger than age 59 ½) will be waived on distributions of up to $100,000. MOSERS will report the distribution as taxable in 2020, but the member may elect to spread the tax over three years on his/her tax return.
  • MOSERS will withhold 10% for taxes on the Coronavirus-related distribution instead of the 20% withholding required with other lump-sum payments. The amount of withholdings does not change the member’s tax liability. The member may recontribute the funds to another eligible retirement plan as a “rollover” within three years.

The following are governed by Missouri Statute and cannot be waived by MOSERS staff:

  1. A member must meet all eligibility rules for retirement and BackDROP.
  2. A member must have terminated MOSERS-covered employment to receive a refund of employee contributions.
  3. A member must wait 90 days after termination of employment or application for a refund (whichever is later) to receive a refund of employee contributions.
  4. A member must meet all eligibility rules for the Cash Out.

The CARES Act is effective January 1, 2020 through December 31, 2020.

If you have questions about the CARES Act and how it may affect your payment distribution options, please contact a MOSERS benefit counselor.