There are two parts to your question. First the 401k withdrawal.
Several things happen with a premature withdrawal from a 401k or IRA. If you pay a penalty to the company itself, that doesn't count for taxes or penalties due the IRS.
Also, you may have had what you considered a fair portion withheld, but you are paying two taxes on this income. The first is your regular income tax based on your tax bracket. These can range from 15% to the maximum of 39.6% this year. See below for a link to see where you might fall. There is also a 10% early distribution penalty. If you are withholding 20% ( this happens fairly often), you are paying the penalty but probably not much of the tax itself. There are exemptions to the penalty. Look at his link to see if you qualify for any.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...
http://taxfoundation.org/article/2016-tax-brackets
EIC
As for your daughter and EIC, here is a list of qualifications you must meet:
To qualify, the child must be:
- Your son,
daughter, stepchild, adopted child or a descendant.
- Your foster
child, placed with you by an authorized agency or court order.
- Your brother,
sister, stepbrother, stepsister or a descendant of one of these.
- Age 18 or
younger as of the end of the year (unless he or she is a full-time
student, in which case the student must be 23 or younger).
Exception: A person who is permanently and totally disabled at any
time during the year qualifies, no matter how old.
- A resident
with you in the United States for more than half of the year.
From
<https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/Earned-Income-Credit/INF12...>
