[CAREGIVER]

Help I Lost My Job In 2004 So I Cashed In My 401k. I Am Single And Have One Child Still At Home.. the Company I Worked For Kept 20percent Of The Amount And Sent It In On My Federal Taxes. My Question Is Will I Have More Taxes And Pentalties When I File This Year, I Am Now Working But Not Making Much Money At All.. my 401k Was Around 24thousand Dollars.. Help I Am So Afraid To Do My Taxes In Fear I Will Have To Pay Money I Don't Have...

[AtlantaTaxExpert]

CareGiver:

At a minimum, you will have to pay the 10% early withdrawal penalty, which is $2,400. That penalty cannot be mitigated, which means even if your deductions and exemptions causes your taxable income to hit zero, you will still have to pay that 10% early withdrawal penalty.

Whether you have to pay on the rest depends on how much other income you have.

[CAREGIVER]

The Only Other Income I Had Was 2000.00 From A Home Business I Had For 3 Months In 2005. Other Than That Ihad No Income. Will I Get Any Of The 20percent Back From The Government?

[Fr_Chuck]

The money that you took out, should be looked at just like income, like you worked a job and that was your pay check, the tax money is held out just like working a job. I would have thought they would have held out the 10 percent penalty and also state taxes before sending you the balance.

When you file your taxes, this money from the fund along with your other income will be shown as income. You will then list what taxes you paid,
( also since you most likeley did not pay any estimated tax or social security tax on yourself employment)

You may either (owe additional tax if they did not hold out enough)
Or get some back if they held out more than needed with your other deductions.

If you had any unemployment money, that is also income and has to be reported.

The money from yourself employment will be taxed, but if they held out enough from the 401K withdrawer it may or may not cover it.

If they did not withhold any state income tax and your state has a state income tax, you will owe that on both the 401 K money and yourself employment income.

If you did not already send in estimated tax on yourself employment, you may also owe social security taxes on yourself employment money.

And if they did not hold out the 10 percent penalty for the withdraw you will owe it also.

All you can do is get your taxes done by a professional and see what happens, the most important thing is to do them, if you owe money and can't pay, still file, there are forms to use to file if you can't pay. You will get into more trouble for not filing than you do for not paying.

[AtlantaTaxExpert]

Fr Chuck's advice is golden! I have nothing to add!

[CAREGIVER]

Thanks So Much Both Of You This Helps A lot.. I Can Now Sleep A Little Better Tonight.. Thanks Again...

[LeeAnnMemphis]

Atlanta Tax,
I know there are a few reasons that cancel out the 10% penalty, such as a first time home purchase, or if the money was used for medical expenses. Is employment also one of the reasons?

[LeeAnnMemphis]

Opps, I meant to say Unemployment in the previous comment.

[AtlantaTaxExpert]

Unfortunately, unemployment is not one of the reasons to waive the penalty!