Have a Tax Question? Ask a Tax Expert
If you are in 28% tax bracket - you will owe additional income tax on that distribution
$27500 * 28% = $7700 plus 10% early distribution penalty $2750 (if you are below 59 1/2) - total $10,450
Please be aware that there are some exceptions from the 10% early distribution penalty - please verify IRS publication 575 page 30-31 - http://www.irs.gov/pub/irs-pdf/p575.pdf - if any may be used in your situation.
The taxes which were withheld by the administrator of your 401k account will be credited against your tax liability (the same way as withholding from wages) - and if total withholding is more than your total tax liability - you will get a credit.
Let me know if you need any help.
If from the gross distribution $27500 - you will rollover $7500 - that will reduce your taxable distribution by that amount.
Your taxable distribution would be $27,500 - $7500 = $20,000
You will owe additional income tax on that distribution
$20000 * 28% = $5600 plus 10% early distribution penalty $2000 (if you are below 59 1/2) - total $7,600.
The amount of tax withheld $2750 will be treated as taxable distribution - and will be included into the amount on the form 1040 line 61 - http://www.irs.gov/pub/irs-pdf/f1040.pdf
For your specific situation - you are correct - your additional estimated tax liability would be $4850.