I withdrew $16,250 from my 401k to purchase my first home. I received my 1099-R and already had the 20% held for early distribution and I do know that I have to pay the 10%penalty on my Federal 2009 Income tax return. I'm lost if I have to pay Michigan State Taxes on the $16, 250? I did Turbo Tax and it did count it as income and then another program in which on Schedule 1 it deducted it from my income and not taxed? Two different answers. Help please!

Were you living in Michigan in 2009 as a resident of Michigan?

If so, then the 401K distribution is subject to Michigan income taxes.

If not, then no.