I went through this exact situation about 6 months ago and can confirm what others have said - the 10% penalty definitely applies to earnings from non-qualified annuities if you're under 59½. One thing I wish I had known earlier is that you should also factor in your state's tax treatment. Some states have no income tax on annuity withdrawals, while others tax them as ordinary income. This can significantly impact your overall tax burden. Also, timing matters. If you're close to a lower tax bracket year (maybe due to job loss, reduced income, etc.), it might be worth waiting if possible. The earnings from annuity withdrawals are taxed as ordinary income, not capital gains, so they hit your highest marginal rate. Before I made my withdrawal, I created a spreadsheet comparing the total cost of withdrawal (taxes + penalty + surrender charges) versus other funding options like personal loans or borrowing against my 401k. In my case, a 401k loan actually made more sense for my short-term needs.

One additional consideration that might help with your decision - if you absolutely need to withdraw from the annuity, consider doing it strategically over multiple tax years if the amount is large. Since annuity earnings are taxed as ordinary income (not capital gains), a large withdrawal could push you into a higher tax bracket for that year. For example, if you need $30,000 total, you might be better off withdrawing $15,000 this year and $15,000 early next year to avoid bracket creep, even though you'll pay the 10% penalty on both withdrawals. Also, make sure to get the withdrawal details in writing from your annuity company before proceeding. I've seen cases where customer service reps gave incomplete information about surrender charges or didn't explain that some contracts allow for hardship withdrawals with reduced penalties. Having documentation will help you plan accurately and avoid surprises at tax time. The 1099-R form you'll receive will show the taxable portion, but it's worth double-checking their calculations against your own records of contributions versus earnings.

Quick question - does anyone know if there are any exceptions to the reasonable compensation requirement? Like if you're running the S corp as a side business and have a full-time job elsewhere?

@Miguel Ramos - Just to add to what others have said about Form 1125-E, yes you absolutely need to file it even with zero compensation reported. But here's something that might help with the bigger picture: consider setting up a payroll system immediately for 2025 to start taking reasonable compensation going forward. The IRS has been increasingly aggressive about S-Corp reasonable compensation audits, especially for profitable companies. Since you crossed $500K in revenue, you're definitely on their radar now. I'd suggest consulting with a CPA who specializes in S-Corps to establish a defensible compensation strategy - they can help you determine what's "reasonable" in your industry and document the rationale. Also keep in mind that once you start taking W-2 wages, you'll have quarterly payroll tax obligations, so factor that into your cash flow planning. Better to be proactive about compliance than deal with penalties and back taxes later.

Mine just updated today! Filed 1/29, getting DD next Tuesday 💰

Filed mine on 1/22 and still nothing showing up either. Starting to wonder if there's some kind of system issue this year because usually WI is pretty quick compared to other states. Anyone know if they changed their processing systems recently?

This is my first year really diving deep into understanding transcript cycles and wow, what a learning curve! I filed on February 15th and have been checking daily with no luck. After reading through all these comments, I'm realizing I might be on a Tuesday cycle instead of the Thursday/Friday one everyone talks about. @Miguel Hernández - thank you for the cycle code tip! I just checked and mine ends in 02, so I'm guessing that means Tuesday updates? Going to stop the daily morning ritual and just check on Tuesday nights from now on. It's crazy how the IRS doesn't explain any of this upfront - we're all just figuring it out through trial and error and community knowledge sharing!

This thread has been incredibly helpful! I'm a newcomer to really understanding the IRS system beyond just "file and wait." Filed on January 31st and have been in limbo ever since. After reading all these responses, I just checked my transcript for the cycle code @Miguel Hernández mentioned - mine ends in 05, so I'm assuming that puts me on a Friday cycle? It's wild that there's this whole hidden system of cycle codes that determines when we get updates, but the IRS never bothers to explain it anywhere. I've been checking daily like a lot of you, but now I'm going to focus on Friday nights only. Really appreciate everyone sharing their knowledge here - this community is doing the job the IRS should be doing in terms of educating taxpayers about how their own system works!

I'm really surprised no one has mentioned Excel templates. There are several free W2 Excel templates available online that you can download and use. I've been using them for years for my small business. You just enter the information once in the designated cells, and it automatically populates across all copies. Then print on regular paper and you're good to go. Microsoft even offers some through their template library. Just search "W2 template Excel" and you'll find several options. Way easier than handwriting or using a PDF editor to place text in specific spots.

As someone who just went through this exact same headache last month, I feel your pain! The lack of fillable W2 PDFs from the IRS is absolutely maddening in 2025. I ended up using a combination approach that worked really well: I used the free version of Wave Accounting (which I was already using for basic bookkeeping) to generate the W2s. Even if you're not using it for full payroll, you can input your employee information and wage data just for W2 generation. It's completely free for small businesses and creates properly formatted W2s that you can print or save as PDFs. The other thing that saved me time while waiting for SSA verification was calling their dedicated business services line (1-800-772-6270) early in the morning around 8 AM. I got through in about 15 minutes versus the hours I spent trying their main number. They were able to expedite my verification over the phone instead of waiting for the mail. For next year, definitely get that SSA account set up early - like in December - so you're not scrambling during filing season. The electronic submission through their Business Services Online is actually pretty smooth once you're verified.