I already had 10% tax withheld when I withdrew from my Traditional IRA. Why do I have to pay 10% again?

[smrose2005]

I reported the withheld 10% amount on my Form 1099-R.

[DoninGA]

If you were under the age of 59 1/2 when the funds were distributed from the IRA then there is a 10% early distribution penalty that will be assessed on your federal tax return and entered on the return as a tax liability.

[smrose2005]

Ok, so even though 10% was already withheld for taxes, an additional 10% gets withheld as a penalty? That makes more sense. I’m 52. 

[MinhT1]

You have done this correctly by entering the tax withheld in box 4 of your form 1099-R.

As you are younger than 59 1/2, you will pay a 10% early withdrawal penalty, which will be calculated by TurboTax.

Tax withheld is just an estimated advance payment of your taxes. The final tax amount can only be determined when you fill out your tax return. The taxes withheld serve as a credit against your tax liability. If too much tax was withheld, you'll receive a refund; otherwise, there'll be a tax due.

[SteamTrain]

Right...the 10% withheld when distributed, is just a pre-payment of the 10% penalty that is assessed in the calculations for your full tax return.  You get credit for it by entering all the boxes on the 1099-R  (box 4 is the Federal withholding done).  Of course, depending on your total income and tax situation, that 10% pre-payment may not have covered all the taxes you owe.

[kbedwards1]

I have this same question, and it doesn't seem like yours was answered (or I'm just dense, which is probably the case).  

The question as I see it is "why am I being assessed a 10% penalty on TOP of the 10% I withheld when I made the distribution?  It seems like this person (and me) are actually being assessed 20% - 10% on withdrawal, and 10% on tax filing. 

Example: in 2024, let's say I early withdraw $1,000, and say I want to withhold 10% federal, so I receive $900.  This IMO has already effectively paid the "penalty", no?  Now in 2025, when I go to pay my taxes on this, I am being penalized ANOTHER 10%.  That, to me is 20% total.  $100 when I withdrew, and $100 "penalty" when I pay taxes.  

Put another way, if I had opted out of that 10% withholding on withdrawal, and when I go to pay tax, will the penalty be $100 or $200?  Thanks!  I'm sure I am just missing something here. 

[VolvoGirl · Accepted solution]

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.

[VolvoGirl]

Are you under 59 1/2?  Then yes there is an additional 10% Early Withdrawal Penalty in addition to the tax on the total withdrawal.   So it could be 10% for tax and 10% penalty or $200.   But even if you had 20% taken out to cover the tax it would still break out and show the 10% penalty as a separate line on your tax return.   

[kbedwards1]

Excellent, thanks, that is clear.   I guess I should have just taken out 20% w/h at the time of withdrawal to avoid having to pay additional at tax time.