Why do we have to pay additional federal taxes on early withdraw from 401k when we had taxes withheld at the time.

[xmasbaby0]

You had tax withheld from the distributions from the retirement account, just like when an employer withheld tax from your paychecks.  When you enter it all into the software, the calculations are done to reconcile the amount of income you received and the amount of tax that was withheld.  You might owe more or you might get a refund.

[AmyC]

You paid the standard 20% when the withdrawal was made. You do claim the tax already paid on your return. All of the income goes on your return and if your tax bracket is lower, you get some back. If your tax bracket is higher, you pay more. 

In addition, since it was an early withdrawal, there is a 10% penalty on Form 5329 unless you qualify for an exception.

Reference: Guide to distribution codes, see Table 1