The tax return computes total tax liability (including any penalties on early withdrawals) and also includes all taxes paid (the withholding from any of your W2s and/or 1099s) to be applied against the tax liability.
Lets pretend that you took an early withdrawal from your retirement account of $10,000 and they withheld 10% ($1000). That $10,000 gets added to all your other income, and lets say once you add it to all your other income, you land in the 15% tax bracket...so that 10,000 gets taxed at 15% ($1500) + the 10% penalty ($1000). So that additional income has now cost you $2500 in taxes....but you only had $1000 withheld...so you end up having to pay that additional $1500 on the tax return (or it will reduce any refund you have by that $1500)
Doe that make help it make better sense? Pulling money early from a retirement account can be pretty expensive.
♪♫•*¨*•.¸¸♥Lisa♥ ¸¸.•*¨*•♫♪
