On my 1099-R I prepaid 10% taxes, and it is listed on the 1099-R. however when filing it, it's adding the 10% to my tax bill. How do I avoid paying the 10% tax twice?

[ddekerl]

I took a withdrawl from 401k (under covid relief act) they recommended I consider withholding 10% from the disbursement for taxes and I did.  The form shows the 10% withheld in the proper box, but when I add the 1099-R in Turbo Tax, it notifies me that I must pay a 10% tax for early withdrawal and then it deducts the 10% dollar amount off my refund, effectively paying it twice. How should I correct this?

[macuser_22]

The distribution itself is fully taxable at your margional tax rate.   If based on all your income you are in a higher tax bracket (20% for example) then the 10% withheld would only pay half the tax.    Withholding is only an estimate.

CARES Act retirement plan COVID-19 related distributions can be paid back over 3 years or the tax spread over 3 years and are not subject to the early distribution penalty.

A COVID-19 related distribution is reported on a new 8915-E form that is not yet available and there is no estimated release date since the form is still in the draft state at the IRS. There is no telling how long it will take the IRS to make the electronic form available. Typical it takes the IRS 2-4 weeks to release the electronic form specifications after the paper version is released. e-file providers must program from the electronic specifications.

The additional 10% early distribution penalty is removed by choosing "Another Reason" for penalty exceptions of "other" on a 5329 form.

The draft paper form 8915-E is here:

https://www.irs.gov/pub/irs-dft/f8915e--dft.pdf
https://www.irs.gov/pub/irs-dft/i8915e--dft.pdf

Also to see if you qualify for a COVID-19 related distribution see:
https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

[ddekerl]

Thank you for the quick response. I totally get that, but it doesn't appear it's affecting my tax bracket as it shows this message:

indicating it is withholding the 10% penalty, and lists the exact amount (10%) which was already withheld as penalty. Then my refund is reduced by that exact 10% penalty. I'm not seeing any indication of additional taxes being withheld, or changing my taxable income bracket based on the disbursement.  Any ideas on how I could clarify if the additional 10% being withheld is something other than the penalty, as that's not how it reads.

[macuser_22]

As my post said, the COVID related distribution  must be reported on the new 8915-E form that does not exist yet.  Wait for it.