Already paid federal tax on 1099R, why is TurboTax saying I still need to pay?

[aidamatt]

I took an early distribution from my 401k last year & received a 1099-R. As part of the withdrawal, I already had the federal taxes withheld (which appears in box 4. But going through TurboTax, its telling me I will still need to pay....the same amount in box 4, as a matter of fact. I want to make sure I'm not paying twice.

[xmasbaby0]

When tax was withheld from the distribution that was just an estimate---much like when your employer withholds tax from your paychecks and puts the amount on your W-2.  When you prepare and file your tax return, you enter the amount of income and the amount of tax withheld, and the software reconciles whether you owe more or get a refund.   You are not being taxed twice on the retirement distribution.

[aidamatt]

Ok, but the amount was already withheld? I mean, TurboTax is giving me the exact amount to pay as what I already paid....so that makes no sense? Also, I didn't pay state taxes at the time so how is that taken care of afterwards? Because TurboTax doesn't give me the option to pay the state portion of taxes when filing.

[bloomt1990]

I also am confused about this. Should the value in box 4 of the 1099-R reduce the amount due? The software is also telling me that I still owe the amount withheld.

[AnnetteB6]

The actual taxes withheld and paid on your early withdrawal (box 4 of Form 1099-R) may not be sufficient to cover the income tax when you take all of your income into account.  Therefore, you may owe some additional income tax that was not expected.  The fact that your balance due is the same as the amount that was withheld from your early distribution is a coincidence.  

The amount withheld in box 4 is added to any other withholdings reported in your return, such as income tax withholdings from your W-2 income.  This total amount withheld goes toward paying your Federal income tax and any 10 % early distribution penalty that is added to your return.  

Even though you may not have had state income taxes withheld from the early distribution, the distribution amount will be included as income (unless specifically excluded by your state) and it will be included as the overall state income tax calculation.  Any state tax withholdings from any source will help to reduce the taxes owed.  

@bloomt1990 

@aidamatt 

[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. The withholding will show up 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.

And by increasing your income you may lose some credits like the EIC. You can lose like up to 50% of it for taxes and penalties for federal and state.