Early Retiremnet (Disability) withdrawal from Pension plan taxed on 1099-R.

[K_Smitty]

Turbo Tax states no tax is due for lump sum withdrawal from retirement plan if it is marked "disabilty". 

The 1040 shows taxes withheld on 1099, but does not add the taxes on the 1099 for refund.

[macuser_22 · Accepted solution]

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@K_Smitty wrote:

Turbo Tax states no tax is due for lump sum withdrawal from retirement plan if it is marked "disabilty". 

The 1040 shows taxes withheld on 1099, but does not add the taxes on the 1099 for refund.

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Where does TurboTax say that?    1099-R's for disability are subject to tax unless box 2a on the 1099-R has a dollar amount that is less than box 1 or the tax is lowered by using the simplified method.

Any tax withheld in box 4 goes on the 1040 form line 17 that offsets the total tax liability.

[K_Smitty]

Withdrew $150,000 out of retirement pension due to total disability. The 1099-R shows the $150 as taxable income, taxable amount not determined, Federal & state taxes withheld, and box 7  has code 3 (disability). 

Isn't all of the taxes withheld due back? The State allows all of the state amount to be returned, due to disability.

For Federal purposes, the withdrawal is taxable, and only the 10% penalty is waived?

[MayaD]

Yes, on the federal the distribution is taxable but the penalty is waived. 

For additional information please refer to IRS.gov pub 590

[macuser_22]

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@K_Smitty wrote:

Withdrew $150,000 out of retirement pension due to total disability. The 1099-R shows the $150 as taxable income, taxable amount not determined, Federal & state taxes withheld, and box 7  has code 3 (disability). 

Isn't all of the taxes withheld due back? The State allows all of the state amount to be returned, due to disability.

For Federal purposes, the withdrawal is taxable, and only the 10% penalty is waived?

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Code 3 asks the earliest age that you could have retired at. If younger then that then the 1099-R box 1 amount is added as wages since it is a wage replacement.  After that age, it is treated as a pension.

The state tax treatment before and after retirement age is determine by the state and there are 50 states that have their own rules.