This year, I took out a 401k hardship withdrawal of $3,000 and I'm aware of the income taxes and the 10% penalty fee for the federal return. With medical expenses (eye surgery) greater then 7.5% of my AGI, will the 10% penalty fee be waived and what form would I need to fill out to have this done? CA resident with an AGI around 44k. I haven't received any of my tax forms yet, as I'm just trying to get a jump on my taxes before the end of the year comes around. Any help would be appreciated.

If the entire $3,000 exeeds the 7.5% AGI amount, then the 10% Early Withdrawal Penalty will be waived. You need to file Form 5329 to claim that waiver.

The 2007 tax forms have not yet been released.