A lady told me she had to cash out here 401k in arizona and paid all the taxes on it she moved to Ore and got here check an was told she had to pay again is this right

[blackhawk57k]

if you allready paid state and federal taxes on the 401k for early withdrawl and moved to the state of oregon and later received your check in the mail why would a bookeeper tell that you had to pay state and federal taxes again why are you being double taxed on it.

[VolvoGirl]

What check in the mail?  The 401K Withdrawal minus the taxes?  Are you showing taxes again on your tax return?

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 gross original 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 withholding will show up on 1040 line 64 or 1040A line 40.  The 10% penalty is on 1040 line 59.

It has to break out and show the 10% penalty separately on your return and then you get credit for all the withholding taken out on Line 64.

[VolvoGirl]

And ps......by increasing your income you may have lost some credits like the EIC . You can lose like up to 50% of it for taxes and penalties for federal and state.

[Hal_Al]

State income taxes are based on where you lived when the income was received. So, the bookkeeper is technically correct, the 401k distribution income may be taxable in Oregon. 

But, she will not be double taxed. The real question is: which state gets to tax the 401k distribution.? Was a mistake made having AZ income tax withheld?

So, she needs to decide which state  she will report the income to. The simple answer is AZ, since she’s already had it withheld and that is where she lived when she initiated the withdrawal.

Ignore the bookkeeper’s advice, and include the income on her part year resident AZ return. Do not report it on the part year  resident OR return