I am being charged for distributing a retirement account early. Why is it decreasing both state and federal income tax return totals?

[Rachel_W · Accepted solution]

Your early retirement distribution is taxable for both Federal and State, that is why both of those refunds are decreasing after you enter your Form 1099-R.  

In addition to paying income taxes on the early distribution, the IRS also penalizes you 10%; however, most States do not.