If you are under age 59½, whatever portion of the entire gross amount distributed (the amount of the check PLUS the 20% mandatory taxes withheld) is not rolled over within 60 days of the distribution will be subject the 10% early-distribution penalty. The gross amount will also be subject to ordinary income taxes. The rollover can be made to a traditional IRA to continue to defer income taxes and avoid the early-distribution penalty on the amount rolled over. To roll over the enter gross amount you will need to substitute other funds for the portion withheld for taxes and you'll get any overpayment of taxes as a refund when you file your 2022 tax return.
Even though this was a mandatory distribution due to having an account balance under $5,000, your employer was required to have provided you with your rollover options prior to making the distribution. Ignoring that information results in a distribution paid to you after the notification period has elapsed.
