Good afternoon.
I took out 3 semesters worth of hardship withdrawals to pay for son's tuition. I knew there was a 10% penalty and i asked them to take an extra 10%. Even with the extra deduction my taxes are showing that i owe an additonal $8000 between federal and state. Does this seem correct? It seems like if i had them take out additional funds it should cover it better than than if i was to get a refund before entering this.
The reason you owe taxes is that the hardship withdrawal is treated as taxable income for the current year, and you have to pay taxes on it. A 10% penalty is in addition to the tax amount you owe. However, you can take advantage of education tax credits for the tuition you paid for your son to reduce the taxes. Turbo Tax will help you with the calculation. The Turbo Tax articles below provide more information.
What education tax credits are available?
Where do I enter Form 1098-T (Tuition Statement)?
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