Taxed or receiving a penalty? Did you tell TurboTax that you used the withdrawal to buy your first house?
Even if you qualify for an exemption, you will still have to pay taxes on your IRA withdrawal, you just wouldn't be subject to the 10% early withdrawal penalty.
You may end up with taxes due or a lessor refund because the withdrawal increased your total income for the year which could push you into a different tax bracket.
Could either of these issues be the problem?:
The first-time buyer exemption applies only to the 10% early withdrawal penalty, not to the income tax due on the IRA distribution.
Also, "first time buyer" means that you (or your spouse, if married), cannot have had any ownership interest in a principal residence during the two-year period ending on the date of acquisition of the property in question.
When I did the withdrawal I paid my Federal taxes on the amount I withdrew at that time and when I added in my 1099 form it took my return down by around $600. Even though I had already paid my taxes on the withdrawal which was stated in the 1099 and I put that I used the whole $4K total I withdrew towards the purchase of my first home and I am filing as single.
It’s difficult to see where the decrease in return is made because TurboTax doesn’t provide that detail, but from what I can tell I am still receiving a penalty even though I fall in the parameters of the exemption from the early withdrawal penalty.
You can only exclude up to 10,000 (each spouse) early withdrawal penalty for a new house. Check Schedule 2 line 8 for any penalty (and form 5329) which goes to 1040 line 23.
If you don't owe the 10% early withdrawal penalty the IRA distribution increased your total income and the tax withholding was not enough to cover the increase in tax. And by increasing your income it may have reduced any credits you qualified for like the EIC. By adding more income it can change many items on your tax return not just that one item.
And....we should ask----did you take money out of a traditional IRA----not from a 401k? If you took the money out of a 401k you are still subject to the early withdrawal 10% penalty.