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It depends. The amount that is exempt from the penalty is the amount that is over 7.5% of your AGI. This means if you have an Adjusted Gross Income of $50,000, then the amount you paid OVER $3,750 would be exempt from the penalty. If you paid $8,000 total for the medical bills then you would still have to pay a penalty on the first $3,750 (if your AGI was $50,000) and the rest would be exempt from the penalty.
After entering your 1099-R into TurboTax, continue through the questions and TurboTax will help you get the exemption if you qualify.
The distribution is not exempt from income tax even if it is exempt from the 10% early distribution penalty. Separately, you might be eligible for a medical-expense deduction on Schedule A, but this deduction is separate from the IRA distribution.
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