I have a 1099-R and I have already had Federal and State taxes withheld (and entered in appropriate boxes. Yet its telling me I need to pay that exact amount. Why?

[dmertz]

The actual tax and any penalty resulting from the distribution is not known until you prepare your tax return.  Just like withholding from your paycheck, any amount withheld for taxes (Form 1099-R box 4) appears on Form 1040 line 64 or Form 1040A line 40 as a credit to be subtracted from the tax calculated on your tax return, reducing your balance due or increasing your refund.  State taxes are handled similarly.

If your balance due increases or your refund decreases after properly entering a Form 1099-R, it simply means that the amount of the distribution withheld for taxes was less than the actual tax liability determined on your tax return.

[matthews-27]

But the taxes were already withheld/paid on my behalf. This doesn't make sense. That's why it shows paid federal/state taxes on my 1099--they deliberately held it back and already paid it.

[dmertz]

Withholding is the equivalent of paying your eventual tax bill on layaway.  Withholding is often a somewhat arbitrary amount of money that you give to the IRS to hold for you that they later give you credit for when it comes time to settle up by filing your tax return.  It does not represent that actual tax liability for any particular portion of your income. Until you prepare your tax return, your actual tax liability is unknown.  When you settle up, if you gave the IRS too much to hold for you, you get money back, a tax refund.  If you gave them to little, you owe a balance due of the shortfall.

[SweetieJean]

It works just like W-2 withholding.  Some folks get confused because the typical withholding on a 1099-R is 20%. But that does not mean the actual tax due is 20%.

[matthews-27]

Right But the actual amount of my withholding matches the amount that Turbo Tax is saying I owe. If I already have paid it why am I being double charged? That is my point? Why is it not crediting it?

[dmertz]

If you entered everything correctly, the fact that the amounts match is coincidental.

[matthews-27]

So the fact that it is recorded as withheld means nothing? How the heck does it credited then rather than paying it twice. That’s my point—it’s been paid already.

[dmertz]

It's entirely possible that your distribution was a subject to a 10% early-distribution penalty and the income falls in the 10% income tax bracket.  If you only had 10% withheld for taxes, as is common for IRA distributions, you'll end up owing another 10% with your tax return.  On Form 1040 or 1040A, the 10% income tax liability is added to the 10% early-distribution penalty and your 10% withholding is subtracted from that, leaving 10% due with your tax return.

[Ptee]

I am experiencing the exact same thing but what I am being told is because My job closed down and I withdrew my 401k early I am being taxed and penalized on both state and federal in the total amount of almost 3,000. Smh

[xmasbaby0]

@Ptee 

When you received that 401k money you had sixty days to roll it over to a new retirement account, which you could have done in a variety of ways.  If you did not do that, then you are subject to tax on that money which was not taxed in the first place when it went into the 401k account.