Question

401k Early Withdrawal: PA State Tax Liability

Forum|Forum|5 years ago
March 31, 2021
1 reply
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Tax Year 2020: We did a total distribution early withdrawal from a 401k in 2020 due to Covid. The 10% federal penalty has been waived due to the CARES ACT. We are not paying the money back in the fund. I need to know if we owe Pennsylvania State Tax and if so, based on the entire withdrawal or a portion? To the best of my knowledge the entire 401k was funded by a paycheck percentage and employer match pre-taxed. Does this mean we would pay 3.07% PA State Tax on the entire distribution? What do we put as the Basis of Retirement Income in Turbotax? Also, would we pay local tax on this distribution?

DMarkM1

PA does not conform to the federal tax rule of dividing a retirement distribution over three years due to COVID.

Since it was an early withdrawal you will pay PA state tax on the entire amount. The basis of a 401K account is zero since it was all pre-tax contributions.

As for the locality taxes, those are normally for wages (earned income) so not applicable for retirement distributions.

Here is a link to the PA ruling.

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