I just want to point out to anybody reading this thread that the law for spreading out the income and to waive the penalty are only for QUALFIED Covid-related distributions. This isn't a get-out-of-jail free card for everybody that withdrew from a retirement contribution, you need to QUALIFY for it.
As for the original question about why there is such a large impact on the tax return, if a person is in the 22% tax bracket and if the 10% penalty applies, that is a total of 32% (plus any state taxes and penalties. So that easily explains $9,000 in taxes on a $27,000 retirement withdrawal.
