You need to open the IRA Information Worksheet and enter the basis (the amount of the Original contribution made) on line 23.   This only makes the difference between withdrawal and the original contribution taxable.   In my clients example, he originally contributed $6,000, it wasn't allowed, so he had to withdrawal it.   When he withdrew it, the market was down and the balance was less than $6,000.  So in this case, none of it was taxable once I entered the basis on the IRA information worksheet