What the financial institution did was do normal tax withhold of the default 10% for a distribution from a traditional IRA or the mandatory 20% minimum on a distribution from a qualified retirement plan. This is simply a down-payment toward whatever tax liability is eventually calculated on your 2020 tax return and the amount withheld will be credited on your 2020 tax return along with any other tax withholding shown on Forms W-2 or 1099. You'll avoid the 10% early-distribution penalty on your 2020 tax return by indicating that the distribution was a Coronavirus-Related Distribution and TurboTax will include the yet-to-be-released Form 8915-E.
Having taxes withheld reduces the chances of a tax underpayment penalty for not paying tax withholding or estimated taxes timely.
