How do we actually pay for the retirement early withdrawal penalty fee?

[thanhtuche]

Hi, I was laid off from my job last year due to no more work available and so I decided to withdraw my retirement fund early to survive in the mean time during Covid season. I am in the process of filing taxes right now (I use Turbo Tax) and last night after filing the 1099-R, it said I owed around $2100 in early withdrawal penalty. However, at the overall finishing of the filing, I still get a refund for $2075 which seems high to me so I am wondering - is this total already included the $2100 early withdrawal penalty that I owe, or do I have to pay for that early withdrawal penalty later? Also, can this penalty fee be waived because it's related to surviving during the Covid?

[RalphH1]

As long as you’ve accurately entered all your 1099-Rs and proceeded through the screens after that, your return should include any early withdrawal penalties (TurboTax does it automatically, based on those entries). And depending on your other income, it’s possible that your withholding (from box 4 of the 1099-R) was sufficient to create the pleasant surprise.

You can check it though, by looking for the 10% number on line 8 of Schedule 2 (which you can of course see by printing out the return, or by previewing your 1040, as described here).

Regarding your last question, the “Coronavirus-Relarted Distributions” were just for 2020. There are still some exceptions to the 10% penalty (related to medical and education expenses, and some uncommon events and circumstances), and the program covers them in that section after the 1099 entry to which I referred. The “Let’s See If We Can Lower Your Tax Bill” screen has an “exceptions” link which lists the possibilities, and you qualify by making entries after that.

@thanhtuche, if you’d like to discuss any of the specific exceptions, or if your refund is still seeming too high, please repost here!

[fanfare]

your penalty is on Schedule 2 Line 8

@thanhtuche 

[leeloo]

@thanhtuche 

Your tax return is a reconciliation of all your income, payments, deductions, adjustments and credits. No one item is taken separately. Your withholding goes to pay all your tax, no matter the source of income. Different line items differentiate the numbers so you can see everything that contributes to the bottom line.

[ThomasM125]

The early withdrawal penalty is included in the refund you mention, you will not have to pay that later. 

The special Covid related penalty relief provisions for early pension plan distributions are not affective for tax year 2022, they were just for 2020, as mention by @RalphH1.  You can use this link to see a list of reasons you may be exempt from a penalty on early withdrawal of pension money:  Early pension withdrawal penalty relief

[VolvoGirl]

It has to break out and show the 10% Early Withdrawal Penalty separately on your tax return (schedule 2 line 8 which goes to 1040 line 23).  Then you get credit for all the withholding taken out..

You didn't actually pay the tax or 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½).  You had taxes withheld like from your paycheck. You still have to enter the whole gross original amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. The gross amount shows up,on 1040 line 4a or 5a and the taxable amount on 4b or 5b.  The withholding will show up on 1040 line 25b.