In addition, they may be subject to. Hardship distributions are included in gross income, unless they consist of designated Roth contributions. In addition, they may be subject to an additional tax on early distributions of elective contributions. Unlike loans, hardship distributions are not repaid to the plan.
Therefore, an economic hardship distribution permanently reduces the employee's account balance under the plan. An economic difficulty occurs when we have determined that the tax prevents you from covering your basic and reasonable living expenses. For the IRS to determine if a lien is causing economic hardship, it will generally need you to provide us with financial information, so be prepared to provide it to you when you call. If that text did not appear in those documents or did not comply with the rules on economic hardship, affected participants may have to request reimbursement of distributions due to economic hardship if the participants are still working for the plan sponsor.
For each hardship distribution, determine if you met the hardship distribution requirements set out in your 403 (b) plan. An unforeseeable emergency is a serious financial difficulty caused by illness or accident, the loss of property due to a fortuitous event, or other similar extraordinary and unforeseeable circumstances that arise as a result of events beyond the control of the participant or beneficiary. Contact the IRS immediately by calling the phone number listed on the rate or in the correspondence and explaining your financial situation. For a distribution of a 401 (k) plan to be due to a difficult economic situation, it must be done taking into account an immediate and significant financial need of the employee and the amount must be necessary to meet that financial need.
Under section 2202 of the CARES Act, the Department of the Treasury and the IRS may publish guidelines that expand the list of factors taken into account in determining whether a person qualifies as a result of having suffered adverse financial consequences. XYZ Public School, with 7,500 participants, provides for hardship distributions in its 403 (b) plan; however, 403 (b) providers determine that a distribution meets economic hardship requirements and keep all records. A plan may apply the same conditions to hardship distributions of periodic and non-elective employer matching contributions as to hardship distributions from elective deferrals. An economic hardship distribution is a withdrawal from a participant's elective deferment account that is made because of an immediate and serious financial need, and is limited to the amount needed to meet that financial need.
During a review of its plan operations, ABC determined that these hardship distributions were available to all participants and that they met the IRS rules applicable to hardship distributions.