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Stizzy · Feb 26, 2010, 12:05 PM

In 2008, I lost my job, and had to cash out my 401k. I had Wachovia take out the federal taxes on it.

I got a AUR Control letter today saying that I owe $1804 on it, but Wachovia took out $2150 in federal taxes when I got my check in 2008.

Anyone have any ideas as to what is going on here?

ebaines · Feb 26, 2010, 01:17 PM

When you cashed out your 401(k) Wachovia should have withheld 20% of the amount as a "down payment" on the actual taxes you owed. But this is unlikely to be the actual amount of tax you really owed. The distribution is treated as ordinary income, and you should have included the amount on line 16 of your 1040 ("pensions and annuities"). In addition, because this was an early distribution (I'm assuming you were under age 55), you also owed a 10% early withdrawal penalty, which you should have included on line 58 ("additional tax on IRAs, other qualified retirement plans, etc"). Then you show the amount that was withheld by Wachovia on line 62 ("Federal income tax withheld from forms W-2 and 1099").

So it seems that you may have either forgetten to include the distribution as income, or forgotten to include the 10% penalty in your tax calculation.

Stizzy · Feb 26, 2010, 01:50 PM

Thanks for the reply.

I only got back around $4700 after they took out the 10% and 20% (and the balance of the loan I owed). It seems outrageous that they would want another $1800 in tax after they already took 20%.

ScottGem · Feb 26, 2010, 01:57 PM

First, they didn't take the 10%. You are responsible for adding the 10% to your tax payment. If you did not do that, you would owe that plus penalties. But the next question is did you list the distribution on line 16 of your 1040? If you didn't that could explain the amount.

ebaines · Feb 26, 2010, 01:59 PM

If you had a loan outstanding then that loan was automaticaly converted into an early withdrawal when you left the company (unless you paid it back within 60 days), which means you owed tax and penalty on that amount as well. It's not surprising that you owed more than was withheld on just the distribution.

ScottGem · Feb 26, 2010, 02:03 PM

Whoops missed the loan issue. As ebaines said the taxable amount of the distribution was not just the $4700 you received by the balance of the loan too. They should have withheld 20% of the total. And your penalty is 10% of the total.

So the question is, what do you report on your return?