I paid taxes on my early withdrawal from my 401k when I took the distribution. But, when I'm doing my taxes, it imposes MORE tax. Why?

[stacy9avery]

I

[xmasbaby0]

You had tax withheld from the distributions from the retirement account, just like when an employer withheld tax from your paychecks.  When you enter it all into the software, the calculations are done to reconcile the amount of income you received and the amount of tax that was withheld.  You might owe more or you might get a refund.

[MayaD]

The amount you paid was an estimate. The exact amount of taxes is calculated when you prepare your return and enter all income received. 

[stacy9avery]

So because the withdrawal increased my taxable income, and despite paying taxes on my actual income from my job AND the early withdrawal,  I most likely owe MORE because we simply didn't pay enough taxes altogether?

[VolvoGirl · Accepted solution]

Right.   You didn't actually pay the tax or the 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 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/5b. The withholding will show up on 1040 line 25b.

It has to break out and show the 10% penalty separately on your return (schedule 2 line 8 which goes to 1040 line 23). Then you get credit for all the withholding taken out on 1040 line 25b.