I got my 401K distributed. Both state and federal taxes were withheld, but I still ended up owing the approximate amount withheld. Am I supposed to be taxed twice?

[VolvoGirl]

Did the withholding show up on 1040 line 25b?  The withholding is not the tax.  It is just an estimated amount to cover any tax due.   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. 

Are you under 59 1/2?  There is an extra 10% Early Withdrawal Penalty.  

[smithmc94]

That doesn't make sense to me because I received the distribution less the 20% and an early withdrawal penalty. So if that wasn't the tax, then what was it? 

[VolvoGirl]

It was withholding like from your paychecks.  It is not the actual tax.  The 401K distribution adds to your other income and may have pushed you into a higher tax bracket.  You pay tax on your total income minus the Standard Deduction (or Itemized Deductions). 

And by increasing your income you may have lost some credits like the EIC .  You can lose like up to 50% of it for taxes and penalties for federal and state.

As I said above make sure you are getting credit for the withholding in box 4 on your tax return line 25b for federal.

[Critter-3]

If you owe on the return then the total withholding from all sources was not enough to cover the total tax bill ... the 1099-R distribution is not taxed in a bubble.   It is added to your other income and then the total is taxed and the 10% penalty is added to the federal taxes.   So if you are in the 25% fed tax bracket + the 10% penalty then you would owe 35% on that distribution and the 20% withheld would not have been enough.  As already mentioned review the entire return ... look at the form 1040 for the distribution in the income section and the withholding in the payments section.... did you enter everything correctly ? 

[Opus 17]

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@smithmc94 wrote:

That doesn't make sense to me because I received the distribution less the 20% and an early withdrawal penalty. So if that wasn't the tax, then what was it? 

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Any tax withheld at the time of the withdrawal is only an estimate.  Your actual total tax for the year is only calculated once, on your tax return, and takes into account all your income, dependents, deductions, and credits.  You get credit for the withholding, but if you tax is more than your total payments, you will owe the difference.

The tax on a 401(k) withdrawal can be as high as 46% federal and 13% state, depending on your age and total income.  The average taxpayer will pay 22% or 24% federal plus the 10% penalty plus 5-10% state tax.

You can also owe tax if you did not have enough money withheld from your regular pay, especially if you have recently lost other deductions and credits (such as, your children outgrew the child tax credit or the dependent care credit),  or you are claiming fewer dependents than you expected when you last filed a W-4 with your employer.