I took money out of my 401K when my MIL passed away in 2020, I received a statement in 2021 for this. is there anyway I can note that so that I'm not penalized as much?

Not unless you meet one of the other penalty waivers, which is unlikely.

There is no 10% early distribution exception for that reason.  The taxable amount of the distribution will be entered on your tax return as ordinary income and taxed at your current tax rate.  If you were under the age for excluding the 10% early distribution penalty, the penalty will be entered on your federal tax return as tax liability.

Go to this IRS Tax Topic for Additional Tax on Early Distributions From Retirement Plans Other Than IRAs - https://www.irs.gov/taxtopics/tc558

Thank you. I was afraid you were going to say that. :( 

That 1099-R goes on your 2020 tax return.

@fanfare  2020 even though it says 2021 1099-R?

I had been paying it back for a while until I ran into money issues 

you said above, you got it in 2021.

a 2021 1099-R for a 401k loan goes on your 2021 tax return, 

So I wanted to make sure I clarified everything. MIL passed 3/29/20. I took a loan out to pay for her final expenses, attorney, etc. I was making payments on the loan. My company was sold and also due to Covid related money issues I did not finish paying the loan back. 

Probably not. There is an early withdrawal penalty exemption for medical expenses, if your MIL was your dependent or qualified under the medical dependent exception.

You can include medical expenses you paid for a dependent or an individual that would have been your dependent except that:

• He or she received gross income of $4,300 or more in 2021;
• He or she filed a joint return for 2021; or
• You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2021 return.

For a list of early withdrawal exemptions see: Exception to 10% Additional Tax.