I was forced to take an early retirement package. I was 53 yrs old I need to cash in my 401k because i need to clear up some bills, repair my auto and I wanted to make some home improvements. I had to pay 20% penalty on 35K (7,000) for cashing 401k early... now while doing my takes I see I must pay another 10% penalty 3,500. Can I claim either of these on my income tax...... where?::(

Apparentally no one explained to you what this was all about. The 20% was not a penalty, its was a withheld amount towards your tax liability. Just like the amount withheld from your paycheck. The 10% is the penalty for taking an early withdrawal from your 401K.

You should have gotten a 1099R statement that the taxable value of your distribution was $35K and that $7K was withheld for taxes. So the $35K is added to your taxable income for the year and used to figure out the taxes due. The $7K is applied towards that amount along with what was withheld from your paycheck (reported on your W2).

The 10% penalty is not taxdeductible since its a penalty.

Yes taking money out of the 401 K is a very expensive way to get money, and should only be used as a last resort. You lose the interest you would get, have to pay taxes on the money as income and then pay a penalty, it is often cheaper to just go borrow the money short term instead if possible.

And unless this is for health issues, perhaps another job to earn income to pay the bills

Fr Chuck and Scott covered all the hideously bad details.

I see no reason to pile on!