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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13343
Experience:  15years with H & R Block. Divisional leader, Instructor
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I took an early withdraw from my 401K to pay back a tax lien

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I took an early withdraw from my 401K to pay back a tax lien from the state of Maine for 2007 and 2009 so that I would be able to close on my home that I purchase this year. I also used the money for the closing costs and to pay the IRS tax penalties for 2010 and 2011 so that we could be debt free. Is there a way to claim or get credit for any/all of these without being penalized for the early withdraw? If so, how?

Robin D :

Hello and thank you for using Just Answer,
The IRS does allow an exemption from the penalty if they require the distribution (they levy the 401K) but if the taxpayer does this on their own, there is no exemption form the penalty.
The state taxes paid would be allowed as a deduction in the year paid though. No penalty or interest amounts but the actual taxes paid are allowed.

Robin D :

If the state taxes were income or property taxes then you can claim them on the Schedule A in their respective places (line 5 or 6).

Robin D :

Hi

Robin D :

Let me know after you read if you have further questions please.

Customer:

Thank You. Nothing else

Robin D :

You can still look to other areas . If your medical was high or you paid higher education costs.

Robin D :

Those may be areas to reduce the 10% penalty.

Robin D. and 2 other Tax Specialists are ready to help you