In March 2023, I withdrew $30,458.74 early from my 401k but forgot to include it in my tax filing. I plan to amend my 2023 taxes in January 2025 using the 1099R. The form shows I withheld $6,091.75 for federal taxes and $609.18 for California state taxes. Will I still get hit with the 10% penalty, or does the amount I already withheld cover some of that? Could I even get a refund since I withheld more? I’m a bit confused about how this works.
The 10% is just the penalty. You’ll still owe taxes at your regular income tax rate.
Terry said:
The 10% is just the penalty. You’ll still owe taxes at your regular income tax rate.
Even though I withheld 20%?
Terry said:
The 10% is just the penalty. You’ll still owe taxes at your regular income tax rate.
Even though I withheld 20%?
Withholding is just a prepayment estimate. It doesn’t affect the actual tax or penalty owed.
Valen said:
@NomadNerd
So I don’t subtract it from what I owe? Isn’t that like being taxed twice?
The tax and penalty are based on the withdrawal amount. Your withholding is applied to reduce your total bill, so you’re not being taxed twice.
Valen said:
@NomadNerd
So I don’t subtract it from what I owe? Isn’t that like being taxed twice?
Your tax bill is calculated first, then withholding is subtracted from that. It’s not double taxation, it’s just settling the balance.
@NomadNerd
I got a refund for my 2023 taxes because I didn’t include the withdrawal. For the amendment, do I add the withdrawal amount to my income, and where do I include the 10% penalty? Do I need to amend state and federal returns separately? This is my first time amending.
@Valen
Yes, you add the withdrawal to your income and include the 10% penalty. You’ll amend federal and state returns separately since they go to different tax agencies.
An early withdrawal is taxed at your regular income rate, plus a 10% federal penalty and a 2.5% California penalty. For example, if your federal tax rate is 22% and California is 9.3%, your total rates would be:
- 32% (22% + 10%) for federal, and
- 11.8% (9.3% + 2.5%) for California.
In this case, you’d likely owe more because your withholding didn’t cover the full tax liability.
@Ari
So I’d add my regular tax rate to the 10% penalty for the withdrawal on the federal return? What about the 20% I withheld—does that reduce what I owe?
Valen said:
@Ari
So I’d add my regular tax rate to the 10% penalty for the withdrawal on the federal return? What about the 20% I withheld—does that reduce what I owe?
Exactly. You add the 10% penalty to your federal tax rate. The 20% you withheld is then subtracted from your total tax owed.
Valen said:
@Ari
So I’d add my regular tax rate to the 10% penalty for the withdrawal on the federal return? What about the 20% I withheld—does that reduce what I owe?
The withholding reduces what you owe but doesn’t change the taxable amount of the withdrawal itself.
Valen said:
@Ari
So I’d add my regular tax rate to the 10% penalty for the withdrawal on the federal return? What about the 20% I withheld—does that reduce what I owe?
Your tax software will have a spot for the withheld amounts. Once you enter your 1099-R, it calculates everything.
@Kei
I got a refund for 2023 since I forgot to include the withdrawal. Will the amendment form have spots to enter this info? Does my liability get reduced by the refund I received?
Valen said:
@Kei
I got a refund for 2023 since I forgot to include the withdrawal. Will the amendment form have spots to enter this info? Does my liability get reduced by the refund I received?
The amendment form will consider your original filing and the refund you got. You’ll owe the difference between your original and amended returns, plus possible penalties and interest.
Valen said:
@Kei
Thanks for clarifying. What’s the penalty for not including the withdrawal originally?
The penalty is 0.5% of the unpaid balance per month, plus interest, which has been around 8% annually. If your withholding was close to covering it, the penalty shouldn’t be too bad.
You’ll owe the 10% penalty for taking the money out early. Add the withdrawal to your regular income and make sure to account for state taxes too.
Sidney said:
You’ll owe the 10% penalty for taking the money out early. Add the withdrawal to your regular income and make sure to account for state taxes too.
Do I file separate amendments for state and federal returns? Is the 10% based just on the withdrawal or my total income?