Taxes on early distribution on 401k

[Fallout Boy]

My wife took out part of her 401 to pay off her loans. She paid federal taxes of 10% on the early distribution. Why does Turbo Tax say we need to pay more taxes. 

She took 50,000 and paid 5,000 in taxes. Why does it state we have to pay an additional 5,000.

[macuser_22]

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@Fallout Boy wrote:

My wife took out part of her 401 to pay off her loans. She paid federal taxes of 10% on the early distribution. Why does Turbo Tax say we need to pay more taxes. 

She took 50,000 and paid 5,000 in taxes. Why does it state we have to pay an additional 5,000.

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The 10% penalty  is in *addition* to the normal tax on income.      The mandatory 401(k) withholding is 20% so the additional $5,000 tax indicates that probably you are in the 24% tax bracket and should have had more withheld.

[RayW7]

Assuming you are not 59 1/2 then a withdrawal would be taxed as ordinary income and in addition you would have a 10% penalty.

Note:  If the withdrawal was related to COVID-19 by answering one of the following qualification questions then the 10% penalty would be waved and you could spread the tax over 3 years.

The newly enacted economic stimulus package allows those negatively affected by COVID-19 to borrow up to $100,000 from their 401(k) and IRAs without penalty. It also allows the borrower to pay the taxes on that withdrawal over three years rather than all at once.

• If you, your spouse or a dependent has been diagnosed with COVID-19, this "free pass" and "tax extension" applies to you.
• It can also apply to those who are facing financial hardship due to the pandemic. If you're in this group and need to make the withdrawal, then you should definitely consider this to be an option.

-follow this link for additional information-

2020 Stimulus: Tax Relief for This Year's Taxes - TurboTax ...

[SweetieJean]

Was the loan she paid off a 401(k) loan, student loan, or some other type?