Q. Last year, I took out $3,000 from my 401(k) and paid my 20 percent penalty. This year, I went to do my taxes and expected to pay the additional 10 percent penalty of $300. I do my taxes on freetaxusa.com, and my refund was supposed to be $1,800 after I entered my W-2. But as soon as I entered my $3,000 distribution, it knocked it down to $1,300. I have no other factors involved as far as why I would be charged more than the initial $300 I expected. Do you think there is something wrong and they are charging me $200 more than I should be paying for my penalty tax? I didn’t finish my return because I don’t want to get cheated out of $200.
A. I suggest you consult a competent tax preparer — one who will defend your return in case of an audit.
1 Comment
The $300 you expected is the 10% penalty for early withdrawal. You still have to pay regular income tax at whatever your tax rate is on the $3,000.