Agencies Give Tax Filing and 401(k) Withdrawal Relief to Hurricane Irma Victims

As with Hurricane Harvey, IRS allows expedited 401(k) loans and withdrawals

By Stephen Miller, CEBS Sep 13, 2017
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Update: The Disaster Tax Relief and Airport and Airway Extension Act of 2017, signed by President Trump on Sept. 29, includes relief from the 10 percent premature distribution penalty for withdrawals from retirement savings and provides expanded loan availability to qualified plan participants. It also offers withholding exceptions, delayed taxation and extended repayment options to ease the financial bite of tapping retirement savings for hurricane recovery. This relief is in addition to recent IRS, PBGC and DOL guidance that extended deadlines and relaxed documentation requirements, reports Conduent, an HR consultancy.

Businesses affected by Hurricane Irma in parts of Florida and elsewhere have until Jan. 31, 2018, to file certain tax returns and make tax payments, the Internal Revenue Service (IRS) announced this week.

The IRS also announced that 401(k)s and similar employer-sponsored retirement plans can expedite loans and hardship distributions to victims of Hurricane Irma and members of their families. This is similar to relief that the IRS granted last month to victims of Hurricane Harvey.

Eligible retirement plan participants can access their money more quickly with a minimum of red tape, the IRS said. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

A person who lives outside the disaster area also can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. Plans can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in IRS Announcement 2017-13.

The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.

Additional 401(k) Relief Sought

House Ways and Means Committee Chairman Rep. Kevin Brady, R-Texas, is considering legislation that would not only suspend, in hurricane-affected regions, the 10 percent penalty imposed when 401(k) plan participants tap their 401(k) retirement savings before age 59.5. "It will include tax provisions, some of which will help people access their retirement funds without penalty for rebuilding activities," he told reporters on Sept. 7.

Tax Filing Relief

The tax-relief action announced by the IRS postpones various tax filing and payment deadlines starting on Sept. 4, 2017, in Florida and Sept. 5, 2017, in Puerto Rico and the Virgin Islands. Affected businesses will have until Jan. 31, 2018, to file returns and pay any taxes that were due during this period, including quarterly estimated tax payments.

In addition, the IRS is waiving some late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period, which began Sept. 4 in Florida. The IRS is offering this relief to disaster areas designated by the Federal Emergency Management Agency (FEMA), as listed on the disaster relief page at IRS.gov.

Hurricane Irma "has been a devastating storm for the southeastern part of the country, and the IRS will move quickly to provide tax relief for victims, just as we did following Hurricane Harvey," said IRS Commissioner John Koskinen in a statement. "The IRS will continue to closely monitor the storm's aftermath, and we anticipate providing additional relief for other affected areas in the near future."

ERISA Filing and Pension Payment Relief

The IRS, the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) also announced in Notice 2017-49 that they are providing affected employee benefit plan sponsors with relief from certain filing requirements under the Employee Retirement Income Security Act (ERISA).

In addition, the DOL announced employee benefit plan compliance guidance and relief for victims of Hurricane Irma that parallels the relief it provided to victims of Hurricane Harvey regarding verification procedures for plan loans and distributions, participant contributions and loan payments, blackout notices, and group health plan compliance.

The guidance applies to employee benefit plans, plan sponsors, employers and employees, and service providers located in a county identified for individual assistance by FEMA because of the devastation caused by Hurricane Irma or Hurricane Harvey. This relief is in addition to the Form 5500 Annual Return/Report filing relief already provided by the IRS in accordance with the Hurricane Harvey and Hurricane Irma.

Separately, the PBGC said that it is waiving certain penalties and extending certain filing deadlines for defined benefit pension plan sponsors in response to Hurricane Irma. For example, if affected plans have premium filing deadlines from Sept. 4, 2017, through Jan. 31, 2018, the PBGC will waive applicable penalties but not the applicable interest charge.

[SHRM members-only online discussion platform: Disaster Prep & Recovery on SHRM Connect]

Preparing for the Next Disaster—or Everyday Emergencies

While many plan sponsors will focus on the immediate impact of Hurricanes Harvey and Irma, "plan sponsors might also take this time to plan for the future or to refine existing policies designed to assist employees year-round," Jack Towarnicky, executive director at Plan Sponsor Council of America, a trade group, advised in a blog post.

Leave-sharing and employee donation plans are examples of policies that employees can have in place for personal emergencies as well as natural disasters.

IRS Relief Encourages Leave-Based Donation Programs

The IRS announced special relief designed to support leave-based donation programs to aid victims of Hurricane and Tropical Storm Irma. This parallels relief granted to Hurricane and Tropical Storm Harvey victims.

Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charitable organizations providing relief for the victims of this disaster.

Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the cash payments as business expenses.

Details of this relief are in Notice 2017-52, issued on Sept. 14.



Related SHRM Articles:

Hurricane-Related Donations: Ways for Employers and Employees to Help, SHRM Online Benefits, September 2017

Florida Employers: Wage and Hour Considerations and Hurricane Irma, SHRM Online Benefits, September 2017

IRS Lets Retirement Plans Make Loans, Distributions to Victims of Hurricane Harvey, SHRM Online Benefits, August 2017 

Hurricane Harvey and the FMLA: Are Your Employees Eligible for Leave During a Natural Disaster?SHRM Online Benefits, August 2017

Houston Employers: Wage and Hour Guidance and Hurricane Harvey, The SHRM Blog, August 2017


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