A 1099-R reports a distribution from a retirement plan, IRA, or annuity.

According to the IRS, and if this is the case, when you take a premature distribution (before your 59-1/2) from an IRA or pension plan, you pay both tax and a penalty of 10%. At the most, the plan administrator withholds 20% from these distributions, leading many to think that they have paid their taxes on this distribution. Some don't withhold anything.

If 20% is actually withheld and not a lesser amount, it covers your 10% penalty and a portion of your distribution. Rarely does this cover all the taxes since you probably are being taxed at a higher rate than 10%.

Example. On a $5,000 distribution, you may receive $4,000 after the withholding of $1,000 for taxes, although the entire $5,000 is taxable. Imagine you are in a relatively low 15% tax bracket. At 15% taxes plus 10% penalty, you would have to pay $1,250 (25% of $5,000). However, they only withheld $1,000, leaving you, in this example, $250 in the hole.

This is the best case scenario in a situation like this. The amount owed goes up the more distribution you take (getting you into a higher tax bracket) and by withholding less than 20%. A 25% tax bracket plus a 10% penalty in the example above leaves you owing $750 on a $5,000 distribution with 20% withheld.

Of course, the worst case scenario is taking a $5,000 with no withholding and having to pay $1,750 on taxes. Unfortunately, the government gets a big cut before you're 59-1/2.

There are exceptions to the penalty in the link below. You may possibly be able to take advantage of one of them.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...

 Please feel free to post any additional details or questions in the comment section.