For Form 1099-R the total gross distribution is $3,333.33. Box 4=federal income tax withheld=$333.33. I was given $3,000 and the $333.33 was taken out for federal taxes

[plehma63]

After filling out the information needed, it looks like I have to pay an additional $333.33 on my taxes.  My takeout was $3,000 not the full $3,333.33.  Am I misunderstanding something?

[ChristinaS · Accepted solution]

Yes- you need to look at this income the same way you do a W2. You withhold taxes when you get paid, but you either have withheld too little or too much. You don't "prepay" taxes when you get a retirement plan distribution.

The 10% penalty for early withdrawal (under 59 1/2) is added to your tax return. You withhold taxes against your income to cover the tax that you owe. The tax that you owe is determined on your tax return.

You are adding $3333 in income. That's added to your return.

This income is subject to a 10% penalty, plus you owe income taxes on it.

The tax you had withheld is applied against that.

[ChristinaS]

When you add your W2, you don't only add the amount after taxes. Its the same thing here.

[dmertz]

The withholding is treated as money paid to you which you then gave to the IRS to hold until it could be applied to the tax liability determined when you prepare your tax return.  Therefore, the entire amount in box 1 is taxable income to you.