Q. I withdrew my federal TSP in March 2019 and they took the appropriate amount of federal tax. I just received a 1099-R for that withdrawal to file with my taxes for 2019. I know that it is not considered earned income, so will I get taxed again? If not, why am I required to file it with my 2019 return?
A. When you took your withdrawal, the amounts that were withheld were deposits against your tax liability for 2019. When you file your return, you will report the gross amount of your withdrawal as Ordinary Income and it will be used as the basis for calculating your actual tax liability for the year. Your tax liability will then be compared to your withholding and estimated tax payments for the year and the difference will be either due, or refunded to you.