I had to withdrawal early from my 401k last year. I made sure to leave 30% in to cover the 20% tax and the additional 10% penalty. Turbo tax is saying I owe another 10%?

[scott-wedgeworth]

On my form 1099-R form, it was i paid 30% in federal income tax. Online it says i should be taxed 20% and then the additional 10% penalty. Why should i owe any more money?

[leeloo]

The 10% penalty is a flat amount. The standard withholding for a distribution is 20%. That doesn't mean you will be taxed 20%. What you are taxed on is your entire taxable income. Your distribution figures into this amount. You are taxed according to your tax bracket.

[SteamTrain]

Your withholding may have covered the tax...so all that withholding went in as a credit.

But the final accounting for that early withdrawal is only done when you prepare your entire 2022 tax file, and your tax return is where they show that actual 10 penalty charge...IF..if the entries of your 1099-R, and the follow-up questions, indicate you should actually be assessed with one. 

[JamesG1]

We cannot see your tax return.  We do not know your filing status.  We do not know how much income that you are reporting prior to entering the 1099-R into the tax return.

Even if the 20% + 10% = 30% was correctly withheld from the 1099-R, the amount in box 2a of the 1099-R will be added to your other income.  Your total income is the amount that you are taxed upon.

At the bottom of the webpage here, you can see the Federal tax rates which range from 10% to 37% for 2022. Perhaps the income from the 1099-R put you into a higher tax bracket.

@scott-wedgeworth

[Opus 17]

Turbotax will still tell you "because you don't qualify for an exception, you owe an additional 10%" because your actual tax is only computed on the tax form.   Any withholding is only an estimate.  When you enter the 1099-R, you will enter your withholding and it will be a credit against the tax you owe.

[VolvoGirl]

It just has to break out and show the 10% Early Withdrawal Penalty separately on your tax return.  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.