You'll need to sign in or create an account to connect with an expert.
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.
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.
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
rpruiz23
New Member
famlee4m
New Member
Marcus52
New Member
klara_123
New Member
diegoevq
New Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.