Tax on IRA

[Sonny1st]

Last year I pulled 10 grand out of my IRA. At the time I had to pay 10% federal tax so I ended up with 9 grand.

Now TurboTax is adding that 10 grand as taxable income. This can't be right can it??

[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 you 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 6 which goes to 1040 line 23). Then you get credit for all the withholding taken out on 1040 line 25b.

[Sonny1st]

First off I am 70 yrs old. And yes on line 4 of my 1099-R it says "Federal Income tax withheld $1000"

[VolvoGirl · Accepted solution]

I know you pay the 1,000 in box 4.  But it was just withholding.  It is just an estimate, not the actual tax.  You still have to add the full 10,000 to your other income to determine the actual tax on all your income.  The 10% $1,000 might not have been enough.  You will get credit for the 1,000 tax withheld on 1040 line 25 b.  

[dmertz]

The amount withheld for taxes is nothing more than a down-payment on the tax liability calculated on your tax return, the $1,000 is credited on line 25b of Form 1040 and is subtracted from what you would otherwise owe.

The tax withholding is part of what was paid out of your retirement account, so it is taxable along with the rest of the $10,000 distributed.

[Sonny1st]

I got it.. Thanks for steering me in the right direction!