Form 1099-R | IRS

Dear Tax Talk,

I recently withdrew $30,000 from my 401(k), receiving $26,000 after taxes. The reason for the 401(k) distribution was to pay off a loan of $15,000. The balance went back to my 401(k) to repay a loan I had taken out earlier in my plan.

My question is, since federal tax was already deducted, what happens when I file taxes next year with the IRS? Will I be taxed again on the 401(k) distribution, along with my salary? I was 59 1/2 at the time of the transaction.

— Robert

Dear Robert,

You do not need to worry about being taxed twice on this transaction.

Here is what you can expect:

  • In January or February, the pension plan administrator for the 401(k) should send you Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. This form should reflect your gross distribution of $30,000 in Box 1 and also in Box 2a. The $30,000 income is then reported on your 2015 Form 1040 on line 16, “pensions and annuities.”
  • The $4,000 in taxes withheld should be reported on that same Form 1099-R, in Box 4. You will get a deduction for those taxes on your Form 1040 on line 64, “federal income tax withheld from Form W-2 and 1099.”
  • When you complete your tax return, the income is added in, along with all of your other income, and you are taxed accordingly. You do get credit for all of the taxes that were withheld and paid in on your behalf.

However, sometimes the taxes withheld are not enough to cover the tax liability resulting from the distribution. This surprises many people who mistakenly believe that if they had taxes withheld on their pension distribution, they will not owe any additional taxes to the IRS.

Additionally, you timed this transaction correctly and will not be subject to the 10% additional tax since you met the age requirement. The whole point of putting your money into the 401(k) was for your retirement years, and that is why the IRS has the additional 10% tax on early distributions.

Thanks for the great question and all the best to you.

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