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bassdog65 | Tax Audit question, re: 401k Distribution? |
I got audited on my 2006 tax return for taking an early distribution from my 401k. When I closed the account, I was given the option to have them withhold the penalties and taxes, or to give me the full amount, and let me pay them with my return. I chose to have them withhold the amount from the distribution. Where would that information for the amount withheld be reported? On the 1099 that they sent me? I thought I filled it out correctly, but according to the IRS I claimed the money as income, but did not pay taxes on it.
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@ answerers:
I believe I paid the tax estimate AND the 10% penalty already, and my question is where on a 1040 do I put this information? |
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digdowndeepnseattle
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You likely had them WITHHOLD for the tax estimate and 10% penalty but that doesn't mean you paid them if you didn't fill out the 1040 correctly. Line 16a should have the gross distribution amount which is in box 1 of 1099-R. Line 16b should have the taxable amount which is box 2 of 1099-R. Then on line 60 you should put 10% of the amount shown on Box 1. That is the 10% penalty portion. . The withholding amount from Box 4 should have been added to your regular wages withholding on line 64 of your return.
The key was that 10% penalty going on line 60. Just because you had it withheld doesn't mean it was paid. It's not until you complete this line that you actually charge yourself. If you left it blank then the extra 10 penalty was simply withheld from your check and then returned to you was a refund (or used to offset your tax liability) when you filed your taxes.
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Judy1
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The amount withheld would show in box 4, "federal income tax withheld", on the 1099-R. What you should have done is report the amount in box 1 as income, and the amount in box 4 as withholding. Just like with your regular paycheck, the amount withheld is an estimate and doesn't necessarily match what you actually owe. |
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Mathew
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This is a common misconception with distributions from 401Ks, IRAs and the such. The amount of distribution from a 401K is reported as income on lines 16a and 16b (IRS form 1040) and the amount withheld from your gross distribution is reported as withholding on line 64 (IRS form 1040), in the same manner and on the same line as withholding from your wages. For example if you had $100 in W-2 withholding and $100 in 1099-R withholding line 64 would show $200 total withholding. You need to attach your Form 1099R showing the Federal withholding if you are doing a paper return. In addition to the distribution amount impacting your ordinary income tax liability you may also have a 10% early withdrawal penalty if you were not 59 1/2 years of age at the time of the distribution. This same problem will occur with your state return if your state has state income tax. |
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stephenweinstein
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1. A key word in your additional details is "estimate". If the actual tax is more than the estimate, then you have not paid the full tax and do owe the difference. The amount withheld is usually just 20%; the tax is usually more than 10%, so the tax plus the penalty is usually more than 20%, so you probably did not pay it all.
2. The amount withheld would be shown on the 1099.
3. You report the total of all amounts withheld for federal income taxes on the same line of the 1040, the one that says taxes withheld. This includes both the amount withheld that is shown on the Form 1099 relating to the 401K and the amount withheld that is shown on the Form W-2 relating to your paychecks.
4. You do not report anywhere that the amount withheld from the 401K distribution was or was not equal to the tax and penalty. You report the total of all your tax and the total of all your withholdings. These totals are then compared to determine if you owe or are entitled to a refund. |
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v b
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To have filed correctly, you would have filed a 1040. If you filed a 1040a, you would have forgotten the 10% penalty as there is no line for it on that form.
On the 2006 1040, the lines used are the following:
Line 16b, full amount of distribution (before withholding).
Line 60 was where the 10% penalty would have been entered. You would have entered a NO if no form 5329 was attached.
Line 64, you would have entered the full amount of the withholding from the 1099-R.
Alas, the withholding is almost always 20%. This is 10% for the penalty and 10% for the tax. The 10% for the tax is rarely enough. Many people who take the money out are already in the 15% or 25% tax brackets, so the they were short 5-15% on the withholding to start with. |
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Jss
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Early distribution is subject to 10% penalty and it is taxes as ordinary income. For this you complete form 5329.
Read http://taxipay.blogspot.com/2008/08/elective-deferrals-401k-plans.html |
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curious george
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Any tax withheld should show on the 1099R you received. The amount you withdrew goes on line 16. The 10% penalty goes on line 60, along with a form 5329. Anything withheld (from anything) goes on line 64. If your 1099R doesn't show any withholding and you are sure it was done, contact your 410k administrator, sometimes they do make mistakes. Tell the IRS auditor what you are doing in regards to the 1099R, because most likely their records of your 1099R aren't showing any withholding |
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Helen, EA in PA
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No, you did not pay the estimate and penalty. You had withholding, just like your paycheck. You pay the taxes and penalty on your return when you file.
I'm going to say with 99.9% confidence that the IRS letter is correct.
Helen, EA in PA |
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