Re Early withdrawal from retirement. The total withdrawal was 3,600. I had 360 (10%) of federal income tax withheld at the time. Am I paying tax twice on this income?

[pajaritaboland]

I'm concerned that although I had %10 withheld at the time of the early withdrawal that I am now paying tax on the income twice.

[KenH1 · Accepted solution]

There are two taxes on an early withdrawal: regular income tax (which applies to everyone) and the penalty tax (for early distributions). These get rolled into one final tax number on your 1040.

You may have had 10% withheld from the distribution, which will offset your the total tax number above.  This would be rolled into your "Federal Income Taxes Withheld" amount on line 64.

10% withholding usually won't quite cover the effect of the early distribution.

[tion]

I have the same issue too.

You say it will OFFSET, but when. why is it showing the same large amount owed?

[DianeW777]

The withholding is a requirement by the IRS for the payer of the early withdrawal of your retirement account. This covers only the penalty of 10% and not any personal income tax.  The personal income tax is a graduated tax depending on where your taxable income falls after all credits and deductions. Nothing has been withheld for that portion of your tax at all.

The taxable income can be found on line 15, Form 1040.  Once you locate that number you can use the marginal tax rates in the information below to see what your personal income tax rate is.

• Marginal Rates: For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates are:
   
  • 35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
  • 32% for incomes over $164,925 ($329,850 for married couples filing jointly);
  • 24% for incomes over $86,375 ($172,750 for married couples filing jointly);
  • 22% for incomes over $40,525 ($81,050 for married couples filing jointly);
  • 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
  • The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).

If you already have a taxable income without the addition of the withdrawal there will be additional tax at your highest rate on this income. 

@pajaritaboland

@tion