I have a 1099R distribution from my 401K with my former employer direct deposited to another account ($55,000). There was a federal withholding tax of about 20% ($11,000). The amount reported on the 1099R form was $44,000. Now the IRS wrote me a letter saying that the $11,000 is supposed to be included as income for that year. Is this right?

ANSWER

The BIDaWIZ Team's Answer:

The IRS is correct in that the total distribution of $55,000 is included in your adjusted gross income for the year. However, since 20% in taxes was already withheld, you've already paid most if not all of the taxes associated with the distribution. This would be reflected correctly on your form 1040.