I believe I already paid 20% penalty for early withdrawal of my 401k. I withdrew due to termination of employment . This money was used as the only income I had. Why am I being penalized again?

[Coleen3]

When you take a premature distribution from an IRA or pension plan, you pay both tax and a penalty of 10%.The 20% already paid covers your 10% penalty and whatever portion of your tax that falls into the 10% bracket of taxable income. Rarely does this cover all the taxes since you probably  are being taxed at a higher rate than 10%. There are exceptions to the penalty in the link below. You may possibly be able to take advantage of one of them.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...

[VolvoGirl]

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 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.

But if you were 55 or older when you stopped working there that is an exception to the Early Withdrawal Penalty.