Please be aware if you withdraw funds from your IRA before reaching age 59½ you will have to pay an additional 10% early withdrawal tax unless an exception applies. Please see IRS Exceptions to Tax on Early Distributions for additional information. TurboTax is calculating the penalty after you entered all your information in regards to your 1099-R. The taxes withheld will be credited on line 25b of your Form 1040 and applied to any tax liability calculated. Therefore, you do not have to pay this 10% tax twice. Please follow these steps to enter your 1099-R: Login to your TurboTax Account Click on the Search box on the top and type “1099-R” Click on “Jump to 1099-R” Please be aware if you withdrew from your IRA because your were directly impacted by the pandemic then you won't have to pay the 10% penalty, but the Form 8915-E, that reports the Coronavirus-related relief measures for retirement plan distributions, isn't ready yet. TurboTax will update this section soon and then you can finish your distribution information. Please see here for additional information and to sign-up for updates. You qualify if: You, your spouse, or your dependent are diagnosed with COVID-19 You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off or having work hours reduced because of COVID-19 You’re unable to work due to child care closure or hour reduction because of Covid-19 You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19. You can choose to have the distribution taxed over 2020, 2021, and 2022 instead of only in 2020. You’ll have three years to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions. If you pay back the amount within that time, you’ll be able to claim a refund on those taxes paid when you file an amended tax return. Please see IRS Coronavirus-related relief for retirement plans and IRAs for more details. Please follow these steps to enter your 1099-R: Login to your TurboTax Account Click on the Search box on the top and type “1099-R” Click on “Jump to 1099-R” and you should see the “Your 1099-R Entries” screen Click "edit" and continue until "Tell us if any of these uncommon situations apply" screen Select "I took out this money because of a qualified disaster (includes COVID-19)" (TurboTax will walk you through questions once this section is ready)

Question

I took an early withdrawal from my traditional IRA and withheld the 10% federal income tax. Why is TurboTax saying I have an extra tax bill of 10%?

Forum|Forum|5 years ago
February 13, 2021
1 reply
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D

DanaB27

Please be aware if you withdraw funds from your IRA before reaching age 59½ you will have to pay an additional 10% early withdrawal tax unless an exception applies. Please see IRS Exceptions to Tax on Early Distributions for additional information.

TurboTax is calculating the penalty after you entered all your information in regards to your 1099-R. The taxes withheld will be credited on line 25b of your Form 1040 and applied to any tax liability calculated. Therefore, you do not have to pay this 10% tax twice.

Please follow these steps to enter your 1099-R:

Login to your TurboTax Account
Click on the Search box on the top and type “1099-R”
Click on “Jump to 1099-R”

Please be aware if you withdrew from your IRA because your were directly impacted by the pandemic then you won't have to pay the 10% penalty, but the Form 8915-E, that reports the Coronavirus-related relief measures for retirement plan distributions, isn't ready yet. TurboTax will update this section soon and then you can finish your distribution information. Please see here for additional information and to sign-up for updates.

You qualify if:

You, your spouse, or your dependent are diagnosed with COVID-19
You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off or having work hours reduced because of COVID-19
You’re unable to work due to child care closure or hour reduction because of Covid-19
You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

You can choose to have the distribution taxed over 2020, 2021, and 2022 instead of only in 2020. You’ll have three years to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions. If you pay back the amount within that time, you’ll be able to claim a refund on those taxes paid when you file an amended tax return. Please see IRS Coronavirus-related relief for retirement plans and IRAs for more details.

Please follow these steps to enter your 1099-R:

Login to your TurboTax Account
Click on the Search box on the top and type “1099-R”
Click on “Jump to 1099-R” and you should see the “Your 1099-R Entries” screen
Click "edit" and continue until "Tell us if any of these uncommon situations apply" screen
Select "I took out this money because of a qualified disaster (includes COVID-19)" (TurboTax will walk you through questions once this section is ready)

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J

jfzapata

Hello @DanaB27

I have a similar question. I took money from my 401(k) due to Covid-19, I qualify for the withdrawal, so I don't have to pay the 10% penalty. I asked my plan manager to keep 20% from the distribution to cover the taxes, which they did. My 1099-R, on Box 4, shows the 20% Federal Tax Withheld.

Why is TurboTax telling me that I have to pay extra taxes (roughly 13%) extra on that withdrawal?

MaryM428

The 401K withdrawal amount was added to your other 2020 income. Then taxes were computed on those amounts. The 20% tax withheld was an estimate of what you would owe on the distribution. The distribution put some of your income into a higher tax bracket and 20% was not enough to cover it.

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