2023 taxes review

[MayaD]

We'd love to help you complete your tax return, but need more information. Can you please clarify your question?

[gravielag00]

I file my 2022 taxes in 2023, and had to pay a lot of taxes back. I purchased a home and use my down payment from a 401k, deducted my taxes once I pulled that money out, when I did my taxes the money I used for down payment was considered income. Can someone explain? To my understanding was that to purchase home using money from 401K would not be considered income.

[VolvoGirl]

Sorry it is taxable no matter what you used it for.  And there is a 10% Early Withdrawal Penalty if you were under 59 1/2.

You didn’t actually pay the tax or the 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 gross 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. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b. The withholding will show up on 1040 line 25b.

It has to break out and show the 10% penalty separately on your return (schedule 2 line 8 which goes to 1040 line 23). Then you get credit for all the withholding taken out on 1040 line 25b.