1099-R tax question

[cspyon]

I withdrew $10,000 from my retirement funds last year, and at the time my federal and state tax was withheld mandatorily, so I received around $7,200. 

Now, this is my question:

Is this $10,000 again taxable when I file the tax return this year, even though I already paid the tax last year when I withdrew the money? I'm asking because when I filled out all the numbers on Turbo Tax 1099-R, I saw my Federal and State Refund amounts going down instantly.  My 1099-R form clearly shows my Federal and State tax amounts withheld. 

Thanks for your reply.

[MayaD]

Depending on your tax situation, the amount withheld might not be enough to cover your full tax liability. The amount withdrew is taxed at your income tax rate in the year you withdraw it. 

For more information please check: How does a retirement plan withdrawal affect my taxes?

[cspyon]

So, what you mean is even if I paid the federal and state taxes for my withdrawal last year, I have to pay the taxes again when I file the tax this year under my income bracket?

[MinhT1]

No. You are not taxed twice.

The tax withheld on your 1099-R serves as a credit toward your tax due calculated at tax time on your tax return.

If the amount withheld is insufficient to cover the tax on the withdrawal, you'll see your refund drop.

[Hal_Al]

You did not "already pay tax". What you paid was only withholding, an estimate of the tax  due. No piece of income is taxed individually. All your income, including pension plan distributions, is added together at tax filing time. The tax is calculated on that total (after adjustments, deductions, and credits). Then withholding is subtracted to determine if you owe more or get a refund.

[cspyon]

RE "If the amount withheld is insufficient to cover the tax on the withdrawal, you'll see your refund drop."

I don't understand what you just said. 

I paid fully for federal tax and state tax when I withdrew $10,000:  federal $2000, state $775

That amount appears on my 1099-R.

[cspyon]

No, you are wrong.

When I checked my bank account, I received only the money after the tax amount of $2,755 was deducted. 

They actually sent me the payment after withdrawing this amount!!!

[xmasbaby0]

The amount you had withheld when you took money out of your retirement account was an estimate of the tax you might owe.    Remember all the times you have had money withheld from your paychecks and received a W-2?   Then you prepared a tax return and the amount of tax withheld (as shown in boxes 2 and 17 of your W-2) was reconciled with your actual tax liability ----so you either got a refund or maybe owed more?  The same thing happens when you have tax withheld from a distribution from a retirement account.  They withhold some tax.  It might have been too much or too little.   The amount you owe is reconciled when it is combined with all of your other income.   You make sure that you enter everything correctly from your 1099R to show the tax that was withheld.

[fanfare]

There is a 10% penalty (  $1,000 ) for taking money out early.

The custodian's withholding calculation ignores this fact leaving you holding the bag, so to speak.

@cspyon 

[cspyon]

RE You make sure that you enter everything correctly from your 1099R to show the tax that was withheld.

Yes, it's all there because Turbo Tax imported it directly from my retirement fund institution. 

I wonder if the money I received after the tax reduction(about $7300) is added to my total income last year and taxed again under my income bracket.

[cspyon]

No early withdrawal penalty in my case. 

[fanfare]

[ ... ]

[ThomasM125]

I think you are confusing the money they took out of your distribution with the tax due on your distribution. You withdrew $10,000 of pension money and paid estimated tax of $2,800. At that point in time, the distribution has not been taxed, you simply  paid an estimate of the tax due that will be settled when you add the distribution to your other income on your tax return. Once you complete your tax return that is the only time the income is taxed, the money they wihheld from your distribution is merely used to pay the tax calculated when you prepare your tax return.   

[cspyon]

One more thing to consider:

I withdrew $30,000 from my retirement account in 2020 under the Covid Relief Distribution,  and I decided to pay the tax over three years. If I pay the tax for $10,000, I no longer owe any tax. 

So, I wonder if this is combined together with the $10,000 I withdrew last year, and taxed again.

[DaveF1006]

No. Your third installment of repayment this year does not affect the $10,000 you withdrew in 2022. The 2022 distribution for $10K will be taxed like a normal distribution independent of COVID considerations.