$189 was deducted for federal tax on a retirement account my wife closed. Rolled rest of it into an IRA. Now it's counting the $189 as income and taxing us 10% on it

[bigbear3333]

$189 was collected as tax, credited as tax collected, then turbotax is counting it as income and taxing us on it

[DavidD66]

If the proceeds were paid out directly to your wife, then the retirement account custodian is required to withhold 20% for federal tax.  In order to avoid it being taxable, you wife would have had to include $189 from personal funds, along with the amount she rolled over within 60 days of receiving the distribution.  In this case, the $189 is taxable income.

[rjs]

What is your question?

TurboTax is handling it correctly. You didn't say how much your wife took out of the retirement account. Let's say it was $945. So she took $945 out of the account, and rolled over $756. The remaining $189 was not rolled over. She used it to make an advance payment towards her 2021 tax, but it doesn't matter what she used it for. Any part of the withdrawal that was not rolled over is subject to the 10% penalty.

The $189 payment that she made will be applied to the tax on your tax return.