My IRA dist. form 1099-R shows I was taxed 10% but turbotax tells me I need to pay the tax. Don't want to pay it twice, what do I do?

[kyledthomson]

I withdrew an IRA in 2017 that had been sitting with no contributions for about 2 yrs.  At the time of withdrawal, I had them hold 10% tax as advised by the financial institution.  When I enter the IRA 1099-R on my taxes form, the tax amount is shown on the form and in turbo tax but turbo tax says I still need to pay 10% tax, which it shows as the same amount I paid.  Am I being taxed twice for the same amount?  How can I verify that i'm not?  Thanks!

[BMcCalpin · Accepted solution]

First, if you are under 59 1/2 years of age, there is an early distribution penalty. Since it is also 10%, I can't tell if this applies to you or not. This penalty is in addition to any income tax that you owe on the distribution.

Since the financial institution probably has no idea of your personal tion, the 10% is usually just a guess for withholding - that's why many use 20% instead.

Second, the tax collected on the distribution does not directly pay your tax on the distribution. Instead, it is held by the IRS as a credit against the tax calculated for your return. So the distribution will be taxed independently of any withholding on your return, and at the end of the 1040, the amount of withholding from all sources (1099-R, SSA-1099, W-2, etc) will be applied to the tax.

[kyledthomson]

Thank you!  That answered my question

[hjtax85]

Why is there an additional tax on #23 when I put the distribution in another place?

[MarilynG1]

Line 23 on Form 1040 is for an Additional Tax on a distribution.  

Look at Schedule 2 to see the type of tax you were assessed.  There are a variety of reasons why an Additional Tax may be due.

Click this link for more info on Schedule 2. 

[jrobwebster]

I just wanted to note, where you said, "at the end of the 1040, the amount of withholding from all sources (1099-R, SSA-1099, W-2, etc) will be applied to the tax," this isn't happening in the software. The 10% was taken out by my institution when my early disbursement was paid, but then an additional 10% was indicated as additional tax owed. At no point was the 10% already withheld applied to my taxes owed. I found a place to manually enter this into the software, but it took an hour long tech support call to figure out why (we never really did), and find what seemed like the correct place to list this. 

[DoninGA]

@jrobwebster If you entered the Form 1099-R with federal income taxes withheld in box 4 of the form, those taxes were automatically transferred to the Form 1040 Line 25b.

[jrobwebster]

I did do that. Still, it was indicated that the amount was still owed, even though it had been withheld. 

[DoninGA]

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@jrobwebster wrote:

I did do that. Still, it was indicated that the amount was still owed, even though it had been withheld. 

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If you were under age 59 1/2 at the time of the distribution and there were no exceptions to the early withdrawal penalty, the program would have assessed an early distribution penalty of 10%.  That amount would have been entered on Schedule 2 Line 8.  The amount from Schedule 2 Part II Line 21 would have flowed to the Form 1040 Line 23 as a tax liability.

[RobertB4444]

If you entered the amount that was withheld in box 4 then it was applied to your withholding for the year.  Adding the 1099-R to your other income may have increased the amount that you owed to more than the amount that was withheld even though there was extra withholding on the 1099-R.

In addition if the code in box 7 of your 1099-R is '1' then there is not just regular income tax assessed on the withdrawal there is an additional 10% penalty for taking it out early.  This may be the number that you are seeing on your tax return.

@jrobwebster 

[VolvoGirl]

You didn’t actually pay the tax or the 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You had taxes withheld like from your paycheck. You still have to enter the whole gross amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b.  You will get credit for the withholding on 1040 line 25b.

It has to break out and show the 10% penalty separately on your return (schedule 2 line 8 which goes to 1040 line 23). Then you get credit for all the withholding taken out on 1040 line 25b.