@smithmc94 wrote:
That doesn't make sense to me because I received the distribution less the 20% and an early withdrawal penalty. So if that wasn't the tax, then what was it?
Any tax withheld at the time of the withdrawal is only an estimate. Your actual total tax for the year is only calculated once, on your tax return, and takes into account all your income, dependents, deductions, and credits. You get credit for the withholding, but if you tax is more than your total payments, you will owe the difference.
The tax on a 401(k) withdrawal can be as high as 46% federal and 13% state, depending on your age and total income. The average taxpayer will pay 22% or 24% federal plus the 10% penalty plus 5-10% state tax.
You can also owe tax if you did not have enough money withheld from your regular pay, especially if you have recently lost other deductions and credits (such as, your children outgrew the child tax credit or the dependent care credit), or you are claiming fewer dependents than you expected when you last filed a W-4 with your employer.
