As hurricane season and natural disasters ramp up, the IRS continues to roll out tax relief for affected victims and to confirm disaster relief available to retirement plan participants. Employers and plan administrators – particularly those with employees in areas impacted by recent hurricanes and wildfires – should continue to monitor FEMA disaster declarations and related announcements, as participants may request to imminently access their retirement plan accounts and tax relief may be available to victims and businesses.
In particular, the IRS has announced expansive relief for victims in Maui and Hawaii counties in light of the recent Hawaii wildfires. Affected taxpaying individuals and businesses now have until February 15, 2024 to file various federal individual and business tax returns and to make certain tax payments (with original deadlines from August 8, 2023, through February 15, 2024), per IR-2023-151 and HI-2023-05.
The IRS also confirmed that additional relief, in the form of qualified disaster recovery distributions (QDRD), is also available to eligible retirement plan participants. QDRDs are special disaster distributions that would not be subject to the otherwise applicable 10% early distribution tax and which allow the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. QDRDs depend on FEMA disaster declarations and the declared incident period, with the IRS following FEMA’s recent Hawaii disaster declaration.
As Hurricane Idalia makes landfall and continues to wreak havoc across Florida and Georgia, victims in those areas may also soon see similar relief.
If interested in furthering employees’ access to emergency funds, employers who do not offer hardship withdrawals may also wish to consider whether it would be a worthwhile plan addition. Employers may also consider adding an “emergency savings” account feature, as made available under SECURE 2.0.
Plan sponsors and administrators should contact their ERISA counsel if unsure which options are right for their employees and plan, and with any questions regarding how to implement and administer these provisions.