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The money you took out of your 401k would be listed on Form 1099-R, not a W-2. Yes, it is income.
Here's how to enter your 1099-R:
You are mistaken that there is not an early withdrawal penalty before age 59 1/2 for taking money out of a 401k for the purchase of a house. There is a 10% early withdrawal penalty. That rule about no penalty before age 59 1/2 for money taken out of a retirement account to buy a house is for traditional IRA's---not for a 401k. Make sure you enter your 1099R.
To enter your retirement income, Go to Federal> Wages and Income>Retirement Plans and Social Security>IRA 401 k) Pension Plan Withdrawals to enter your 1099R.
I'm over the age of 55
The age 55 penalty exception for a 401(k) applies only if you left that job at age 55 or more.
And even though taxes were already withheld, they may not have been enough to pay the actual taxes due.
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