Why is TT pulling more than is necessary for early retirement withdraw?

[Fritolay]

I withdrew my retirement early this last year and the retirement plan withheld 20%. TT (and every other software) is adding an additional 10% for the penalty for a total of 30%. I however, am in the 12% tax bracket so with the penalty that's 22% so TT should only be adding an extra 2%?

I understand if the 10% has to be on a separate line, but will I ever see that 8% overpayment and who will get that back to me or should i go to some small CPA for help?

So far ive talked to 3 seperate  turbo tax representatives who agree with what im saying and it sounds like its a algorithm issue, but ive tried the competition and its the same issue.  Is there something im missing?

[KrisD15]

It doesn't work that way, it might make sense if the 20% they withheld isn't counted as tax paid (a credit ) but it does. 

In other words, it doesn't matter what was withheld, the penalty tax is 10% of the distribution. 

Whether nothing was withheld or 50% was withheld, makes no difference, there is still a 10% penalty tax. 

That amount is added as tax due.  

NOW when the program is ready to do the math, the tax withheld will be considered. 

Example, say you put 5,000 down and order a 50,000 car. 

When the car comes in, it still costs you 50,000. The 5,000 will be subtracted so you owe only the difference. 

Say you put 5,000 on a 50,000 car and order a tow package worth 5,000. You can't say, "Well I already paid 5,000 so the tow package should be free."

What was withheld will be a credit to what you owe. 

The disbursement will have a 10% tax levy. 

That tax will be added to your tax liability. 

The tax withheld will be added to taxes paid. 

That will be subtracted from your tax liability. 

I hope this makes more sense to you now. 

[Fritolay]

I guess I'm still not understanding.

So, will I see that 8% difference ever or no? If not, where is that 8% going? Ive made it to the end of the filing and I'm not seeing the program do the math.

[MarilynG1]

If you are in the 12% Tax Bracket and 20% was withheld on your retirement distribution, the extra 8% is included in your Total Payments and applied to Total Taxes. It is not lost. 

However, if the distribution was large and put you in the 22% Tax Bracket, for example, then the 20% was not enough, and you will owe additional tax.

If this applies to you, then your other income is taxed at 22% also.  That would mean that you under-withheld on your W-2s, as you most likely did not pay 22% tax on that income. 

In TurboTax Online, click on TAX TOOLS > TOOLS in the left menu pane, then choose 'View Tax Summary' from the pop-up window.

Look at TOTAL PAYMENTS.  This includes ALL Federal taxes you paid, from whatever documents you entered.  The difference between TOTAL PAYMENTS and TOTAL TAXES is your refund.

Click this link for more info on Withholding on Retirement Withdrawals.

[Fritolay]

Can you take a look at my screencap and see if it adds up? My retirement was $16240 as represented by the $1620 "other tax"

https://prnt.sc/26rfx9t

[DawnC]

The Other Taxes amount is the 10% penalty.   Included in the $10,143 number is the 20% withholding from your 1099-R.   If you do not qualify to be exempted from the early withdrawal penalty, your tax summary looks like it should.  

[fanfare]

@Fritolay 

Dear Frito:

When you take a distribution your Taxable Income goes up.

This will most likely put you in a higher tax bracket.

You're not paying 12% tax on that withdrawal, you're paying the higher rate specified for your taxable income.