Federal 20% and processing fees were withheld and paid at the time of requesting distribution to close the retirement plan. Box 1, the gross distribution, is what I would like to claim untaxable.
Additional note: I am under the retirement age of 60.
The withdrawal of 401-K and employee stock ownership (ESOP) funds would both be taxable events. That is why they withheld taxes on the distribution. You should receive a form 1099-R reporting the 401-K distribution. A portion of the ESOP withdrawal will likely be reported as income in the box 1 entry on your W-2 form. You should also receive a form 1099-B reporting the stock sales. You need to be careful to make sure the income reported on your W-2 is not duplicated on your form 1099-B. Often you need to increase the cost basis reported on your form 1099-B by the income associated with the ESOP sale reported on your W-2 form.
Thank you for the response.
In my case, I only received a 1099-R. No accompanying W-2 nor 1099-B was received. I can only presume this is because I am no longer a current employee of the company.
It seems I will need to pay taxes on the withdrawn amount in addition to what was already withheld initially then?
The tax withheld would have been reported on your W-2 form if it isn't reported on the form 1099-R. In any case, the IRS will have a record of it so when you file your tax return they will match it up with what you reported and give you credit for it. So, you won't be double taxed. You can report the withheld tax as an estimated tax payment if you don't get a W-2 form and it's not on the form 1099, but you should get a W-2 form. I suggest you contact your employer and ask about it, it may have been issued but you haven't received it for some reason.