When you say taxed already, you are referring to that taxes that were taken out when you got the money.
When you enter the 1099R and enter box 4 Federal Taxes taken out (this is where you get the credit), this is applied against the total income tax and penalty (if an early withdrawal).
You had 20% withheld ($1,250) however if this an early withdrawal you will have a 10% penalty, plus the income tax on it, these two can be higher that the 20% withheld.
This is similar to getting a W-2 as far as taxes go. You pay taxes in out of each check and then when you file the return the W-2 is listed and credit is given for taxes withheld throughout the year.
When a 1099R is entered for a early withdrawal a number of things happen.
- It computes the 10% penalty -some call it extra tax
- It computes the additional income tax on the Withdrawal
- It gives you credit for taxes paid in with the withdrawal.
Then after the 1099R is entered you get to the questions on if the 10% penalty meets an exception and it does, the penalty is removed.
In your case if you had enough taxes withheld in box 4 of the 1099R your tax refund or balance due may not change much.
