We took money out early on our IRA we paid 10% Fed...
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New Member

We took money out early on our IRA we paid 10% Federal taxes at the time of the withdrawl. This is stated on our 1099-R turbo tax is saying we have to pay 10% again

 
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Expert Alumni

We took money out early on our IRA we paid 10% Federal taxes at the time of the withdrawl. This is stated on our 1099-R turbo tax is saying we have to pay 10% again

In the same way you withhold taxes on your W-2 but may still end up owing at the end of the year, a 1099-R works the same way. You are including all your income and all your withholding on the tax return. If what you withheld is insufficient to pay the tax on your income, you owe.  It is a reconciliation.

 

You are being taxed for the 10% penalty that you withheld the money for in the first place. You knew you would get hit at tax time and you had the tax withheld to pay for it. This is the hit. 

 

@nea137

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New Member

We took money out early on our IRA we paid 10% Federal taxes at the time of the withdrawl. This is stated on our 1099-R turbo tax is saying we have to pay 10% again

So you pay 20%tax when you withdraw early. 10% when yo uh withdraw and then another 10% when you file your returns?

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Expert Alumni

We took money out early on our IRA we paid 10% Federal taxes at the time of the withdrawl. This is stated on our 1099-R turbo tax is saying we have to pay 10% again

No- the IRA is required to withhold 20% in most cases.  Your taxable income and penalty is not determined until you file the annual tax return.  Based on your other income and deductions, the tax rate is calculated and then the amount withheld is subtracted from the amount you have due.

@nea137

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Level 15

We took money out early on our IRA we paid 10% Federal taxes at the time of the withdrawl. This is stated on our 1099-R turbo tax is saying we have to pay 10% again

You didn't actually pay the tax or 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You had taxes withheld like from your paycheck. You still have to enter the whole 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. It has to break out and list the 10% early withdrawal penalty separately on your return. It's on 1040 Schedule 2 line 6. Then you will get credit for the withholding on 1040 line 17.

 

And it's very very common to owe more because the withdrawals increase your income and put you into a higher tax bracket. So when you add all your income for year you didn't have enough withholding taken out of the 1099Rs to cover the total tax. You owe more than they sent in for taxes.

 

And by increasing your income it would have changed other items on your return like make more of your SS taxable or changed the limits on your Medical deductions or employee job expenses and changed any credits you qualified for.

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