Exemption from the 10% early withdrawal penalty

Has anyone heard of any updates to how to file for the 10% early withdrawal penalty? I know there has been much discussion, such as changing box 7 on the Form 1099-R from a 1 to a 2 2, then completing the Form 5329, and I've heard people say leave it a 1, file Form 5329 to claim it as Other, and leave it alone for now and wait for guidance, which I can't find any. When I went to the IRS website for the latest Form 5329, it says it is still a draft, and do not file. Any thoughts or findings?

Not sure if you are asking as the reporting entity (plan) or receiver (participant) claiming exemption.

As far as reporting goes, I believe we have to play it straight - that is, if someone is under 59 1/2 then it gets code 1, unless one of the other (non-Covid) exemptions is met.  As far as claiming relief on the 1040, that is in fact done on the 1040 or one of the schedules/forms...8915-E maybe.  I'm not sure if that ties in with Form 5329 or you don't file 5329 at all.

I assume we're talking about COVID distributions under the CARES Act? Notice 2020-50 addresses both the reporting on the 1099-R and how the participant treats it on their 2020 tax return.

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Section 3.A. Tax reporting on coronavirus-related distributions An eligible retirement plan must report the payment of a coronavirus-related distribution to a qualified individual on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. This reporting is required even if the qualified individual recontributes the coronavirus-related distribution to the same eligible retirement plan in the same year. If a payor is treating the payment as a coronavirus-related distribution and no other appropriate code applies, the payor is permitted to use distribution code 2 (early distribution, exception applies) in box 7 of Form 1099-R. However, a payor also is permitted to use distribution code 1 (early distribution, no known exception) in box 7 of Form 1099-R.

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Section 4. This section provides guidance for qualified individuals requesting and receiving coronavirus-related distributions. A qualified individual receiving a coronavirus-related distribution is entitled to the following favorable tax treatment with respect to the distribution by reporting the distribution on the individual’s federal income tax return for 2020 and on Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments (or if there is no federal income tax return for 2020, by filing just Form 8915-E). First, the 10% additional tax under § 72(t) (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs) does not apply to any coronavirus-related distribution. Second, a coronavirus-related distribution is permitted to be included in income ratably over 3 years. Third, a qualified individual is permitted to recontribute any portion of a coronavirus-related distribution that is eligible for tax-free rollover treatment to an eligible retirement plan within the 3-year period beginning on the day after the date on which the distribution was received, and the recontribution will be treated as if it were paid in a trustee-to-trustee transfer to an eligible retirement plan. See section 1.D of this notice for rules relating to which coronavirus-related distributions are permitted to be recontributed. Qualified individuals will use Form 8915-E to report any recontribution made during the taxable year and to determine the amount of the coronavirus-related distribution includible in income for the taxable year.