Are early distributions from a 401(k) Plan taxable in PA? I withheld 3.07% at the time of distribution, but the software is saying that I am due a full refund.

It probably right because if you make a withdrawal from your 401(k) plan before turning 59 1/2 that money might be subject to Pennsylvania income tax. Pennsylvania taxes early distributions on a "cost recovery basis." That means you don't pay taxes until your total distributions exceed your total contributions.