1. Most plan administrators would withhold 20% of the distribution for Federal taxes. This withholding is only a 'down payment" for the taxes you owe on the distribution and not the actual taxes owed.
2. As this is a distribution before age 59 1/2, you are liable for an early distribution penalty of 10% of the amount distributed. Also the distribution when added to your other income may have put you in a higher tax bracket. This is why you owe additional taxes.
3. As I said previously, the 20% tax withheld is only a down payment. On your distribution, you have pay income taxes at your marginal tax bracket plus an early distribution penalty of 10%.
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