Hi, I took an early 401k distribution and had 40% withheld (10% penalty, 30% taxes). TT says I still owe the penalty. Why & will the IRS correct this if I already filed?

[MichaelL1]

When you take the money out of the 401K early there will be a 10% penalty.

You did the correct thing and had the taxes withheld and they are showing in box 4 of the 1099R.

When you report the 1099R, TurboTax will compute the correct tax and the penalty on the early withdrawal and THEN give you credit for the taxes you had withheld.

This is very similar to having taxes taken out during the year on your W-2 pay, then you file you report all the income and get credit for taxes paid in.  Difference in your case, there is a 10% penalty, but you did the right thing and had the taxes withheld, and now when you file it is all reconciled. 

[tcolella17]

Thank you for the response. In the end it seems as though I lost 50% of my total funds from the 401k though. The penalty was included in the federal withholding (30%total) plus 10% from state, and then TT took an additional 10% for the penalty. Does this sound correct? I feel as though it didn’t register when I filed.

[MichaelL1]

Yes, that is right, as I don't know your income (nor should I) but if for example 25% Federal tax rate, 10% penalty and 10% state, that is 45%.  Any if higher Federal tax rate it is be more than 45%.  Sorry about the tax hit.