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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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If I take a lump sum distribution from my pension, does the

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If I take a lump sum distribution from my pension, does the 20% federal tax withheld go against my personal income tax. For example, if I take a withdrawal of $25,000 and they tax that withdrawal at 30% (20% federal + 10% early distribution), does the total amount of $25,000 get taxed again at my personal income tax rate of 25%-28%? If so does the 20% taken out originally included in as taxes paid already? Thanks.

Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good morning. The 20% withheld simply acts just like the withholding on your employment compensation. The distribution is taxed as ordinary income on your Form 1040 and added to your other income to determine your taxable income. Then, once your tax is determined on that ordinary income, the amount withheld is credited against the tax due. So, if you take a withdrawal of $25,000 and the additional tax is 30% of that...which is $7500, the 20% withheld (i.e., $5,000) is then credited against that tax, leaving you owing an additional $2500 when you file your 1040.



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Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question. The 20% tax goes against your personal income tax liability. However, the 10% early withdraw penalty does NOT go against your personal income tax liability - you won't get that part back

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Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and other Tax Specialists are ready to help you

 

 

The original expert's answer is spot on.

 

 

 

He used your 30% example (knowing that you had already presented that as partially being 10% penalty) to address your real question; Am i being taxed twice here?

 

 

 

Do not be confused by the statement ... "The 20% tax goes against your personal income tax liability. However, the 10% early withdraw penalty does NOT go against your personal income tax liability ... "

 

 

 

The original expert's answer (given your specific question) completely clears it up, especially when you look at the numbers.

 

 

 

 

 

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