If I receive a 1099r for early withdrawal from a 401k, does the tax apply to the current calendar year?

[bdawson1234]

If the total of the 401k withdrawal is less than the 1040 standard deduction, and there is no other taxable income for the year, would I be entitled to the full refund of the 1099r amount? 

[DoninGA · Accepted solution]

If you have an early withdrawal penalty being under the age of 59 1/2 at the time of withdrawal, then the penalty is 10% of the amount withdrawn and is entered on the tax return as a tax liability.  If the total tax payments are greater than the total tax liabilities you will get a refund for the overpayment.

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

Standard deductions for 2016 

• Single - $6,300 add $1,550 if age 65 or older
• Married Filing Separately - $6,300 add $1,250 if age 65 or older
• Married Filing Jointly - $12,600 add $1,250 for each spouse age 65 or older
• Head of Household - $9,300 add $1,550 if age 65 or older

Personal exemption for 2016 - $4,050

[SweetieJean]

State may be different..

[dmertz]

Even if your standard deduction and personal exemption reduce your *income* tax liability to zero, you are still subject the 10% early distribution penalty unless a penalty exception applies.  This means that without a penalty exception, you will not get back all of your tax withholding and estimated tax payments made for the year.

[fanfare]

Your 1099-R will be filed with the tax return for the year shown boldly in the upper right corner of that form.

[SweetieJean]

"would I be entitled to the full refund of the 1099r amount?" Do you mean the taxes withheld?

[bdawson1234]

Thank you all for your time. In short the answer is "yes" at the Federal level. A non exempt early withdrawal from a 401k is subject to the standard Federal income tax rate for the same year, plus an additional penalty at 10% of the total amount withdrawn. However, since I have no other taxable income for the year, and the total amount of all taxes assessed on the withdrawal (standard income tax, plus 10% of total withdrawal) will not exceed the standard deduction, I will in fact receive a refund for the entire amount. DoninGa kindly pointed out the key term missing from my intended question was "total tax liability" amount. I was able to find supporting documentation for his answer on the IRS website.

[dmertz]

You will not get back the portion needed to satisfy the 10% penalty.  The 10% penalty is added to your tax liability *after* your income tax liability has been reduced to zero by your personal exemption and the standard deduction.

For example, if you took a $10,000 early withdrawal from the 401(k) of which $2,000 was withheld for taxes, and you had no other income or tax withholding during the year, your income tax liability will be zero but your early withdrawal penalty will be $1,000, resulting in you getting only a $1,000 refund.  Your net will be $9,000 in your pocket and $1,000 paid in penalty.

[RB01]

Can you please share the support documentation from the IRS website? Thanks!

[DoninGA]

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@RB01 wrote:

Can you please share the support documentation from the IRS website? Thanks!

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IRS Tax Topics -

Topic No. 558 Additional Tax on Early Distributions from Retirement Plans Other than IRAs - https://www.irs.gov/taxtopics/tc558

Topic No. 557 Additional Tax on Early Distributions from Traditional and Roth IRAs - https://www.irs.gov/taxtopics/tc557