I took a hardship withdrawal from my 401k and was taxed at 10%. Now it says I owe another 2,000. Could anyone explain why, when turbo tax says it qualifies as tax free?

A distribution from a 401(k) account is never tax free.  The distribution amount is entered on your tax return as ordinary income and taxed at your current tax rate.

Only $1,000 of a hardship withdrawal is exempt from the 10% early distribution penalty.  The balance of the distribution would have a 10% early withdrawal penalty assessed and entered on your tax return as a tax liability if you were under the age of 59 1/2 at the time of the distribution.

Here's more info on Hardship Withdrawal from 401K.

@pdleming