Is the 10% penalty on 401k distributions payable to the IRS or is it included in the overall calculation of amounts payable when the 1040 is prepared?

[nicnat100]

I took out a 401k loan in 2016 and got laid off in 2017. Im still making monthly repayments. If I decide to stop payment, it becomes a withdrawal so I am trying to find out at what point do I pay this 10% penalty.

[NathanS]

You will only have to pay the penalty if you receive a 1099-R form, which would mean it's an actual distribution as opposed to a 401k loan. Generally you pay interest on the loan as you repay it so there isn't a penalty as long as it's repaid. https://ttlc.intuit.com/questions/2908792-if-i-pay-back-a-defaulted-401k-loan-is-it-still-taxable-in...

[SteamTrain]

..... anyhow, IF there is a penalty. for the year it goes into default, then the start of the tax season for that year(Jan-feb of the next year)  you will get a 1099-R form that you enter into the tax program, along with all your other tax data for the year of default, it is figured into your tax submission along with everything else.

But you should have kept this question with your other post so everyone knows your situation.

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[nicnat100]

Thanks for your response. Yes being a newbie, I was trying to keep this with my other question but when I clicked on the link I received in the original reply, it took me to new question box.

[SteamTrain]

and don't forget......If you move addresses between defaulting and when the 1099-R is sent out, you need to inform the 401k administrators....or it may get sent back to them and you'll never know it was sent out.

[SteamTrain]

One thing you haven't indicated...is how approx. much is let on the loan to payback.

If it's only ~5k, then the $500 penalty is somewhat nominal  (but the term "nominal" depends on one's point of view).  But for (say) 50,000 remaining, the $5,000 penalty (and the potential taxes associated) should be pre-paid to the IRS with an estimated tax payment  soon after the default.  But in the end, it's all settled up at tax time when you finally file that year's taxes.