A distribution from a 401(k) account is never tax free. The distribution amount is entered on your tax return as ordinary income and taxed at your current tax rate.
Only $1,000 of a hardship withdrawal is exempt from the 10% early distribution penalty. The balance of the distribution would have a 10% early withdrawal penalty assessed and entered on your tax return as a tax liability if you were under the age of 59 1/2 at the time of the distribution.
