Solved: I withdrew from my 401k and payed the 20% plus the 10% penalty. When I did my taxes though I was charged additional money . Why was that
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I withdrew from my 401k and payed the 20% plus the 10% penalty. When I did my taxes though I was charged additional money . Why was that

 
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Employee Tax Expert

I withdrew from my 401k and payed the 20% plus the 10% penalty. When I did my taxes though I was charged additional money . Why was that

The 20% withheld is just so you avoid the possibility of incurring an underpayment penalty. That functions in the same way as your withholding on your W-2 does. If you don't have enough withheld on a W-2 to meet your tax liability for the year, you would owe additional taxes with your return as well.

In other words, it is just an estimate of the total taxes that you may owe. It does not mean that it will cover your entire tax liability for the year. The withdraw gets added to your ordinary income and that is what your tax liability is calculated on.

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Employee Tax Expert

I withdrew from my 401k and payed the 20% plus the 10% penalty. When I did my taxes though I was charged additional money . Why was that

The 20% withheld is just so you avoid the possibility of incurring an underpayment penalty. That functions in the same way as your withholding on your W-2 does. If you don't have enough withheld on a W-2 to meet your tax liability for the year, you would owe additional taxes with your return as well.

In other words, it is just an estimate of the total taxes that you may owe. It does not mean that it will cover your entire tax liability for the year. The withdraw gets added to your ordinary income and that is what your tax liability is calculated on.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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