I was charged a 20% penalty for an early withdrawal from a 401 account. Where do I report that on my return?

[AnnaB · Accepted solution]

This is reported in Box 4 of your Form 1099-R as federal tax withholding.  The default withholding rate for an early withdrawal from a retirement fund is 20%.  This will be added to your other withholding to be considered a payment towards your taxes.

Your tax return will calculate your actual tax liability on the withdrawal which will include income taxes and a 10% early withdrawal penalty.  Your withholding that was already taken out will then be applied against these amounts to determine your refund or additional balance due.

The tax return serves as a reconciliation of income and withholding to figure your actual withholding.  For example, if you are in the 15% tax bracket and you owe the 10% penalty, this is 25%.  If you only had 20% withheld, you would owe an additional 5%.  If you are in the 10% tax bracket, then the exact right amount was withheld and they would essentially cancel each other out.

The withholding was a pre-payment of your taxes and the tax return actually calculates the tax.  You are not paying the penalty again.  Just make sure that the amount originally taken out is in Box 4 of Form 1099-R and make sure you entered it when inputting your form.

Note: All income, taxes and withholding are accounted for together to determine your end result.

[DoninGA]

You were not assessed an early withdrawal penalty on the 401(k) withdrawal.  The fund administrator withheld federal income taxes for the withdrawal at 20% as is required for funds withdrawn from a 401(k).  Any early withdrawal penalties will be assessed on your federal tax return.  The early withdrawal penalty is 10% of the withdrawal if you are under age 59 1/2 and still working for the company.  If you have separated from the company then the early withdrawal penalty is assessed if you are under the age of 55.

Your receive a Form 1099-R for the withdrawal.  The federal income taxes withheld are reported in box 4 of the form and are entered on your tax return as a tax payment (just like from a W-2).

To enter a form 1099-R -

• Click on Federal Taxes (Personal using Home and Business)
  Click on Wages and Income (Personal Income using Home and Business)
  Click on I'll choose what I work on (if shown)
  Scroll down to Retirement Plans and Social Security
  On IRA, 401(k), Pension Plan Withdrawals (1099-R), click the start or update button

Or enter 1099-r in the Search box located in the upper right of the program screen. Click on Jump to 1099-R