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10% penalty on 401K withdrawals due to pandemic.

Level 1

A tax client took his 401K retirement funds as a lump sum because he lost his job due to the pandemic. His 1099-R shows the income tax taken out,but it includes the 10% penalty.  While preparing his return the 10% penalty was deducted from his refund.  How or what do I do to get that  penalty taken off.  What form do I need to use or how do I go about doing this? 

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3 Replies 3
Level 3

The 8915 form for the pandemic is not ready.  The 1099R will not show a 10% penalty, but will instead show the federal and state taxes withheld.  This is separate from the 10% penalty.

Level 10

on the 1099R worksheet go to Qualified Disaster Distribution Smart Worksheet  check your box for coronavirus distribution.   You'll also need to complete Form 5329 and 8915-E (which is not final yet)

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Level 15

The form 8915-E to indicate this is a qualified disaster distribution is scheduled for 2/25. You also need the form 5329, because you need to show if the tax is being spread over three years or all in this one year.

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