Just got IRS notice for unreported 401k withdrawal on 2022 taxes - now owe $9k. Help!

The good news is you have options! This situation happens more often than you'd think with 401k withdrawals. First, verify the notice is legitimate - it should be a CP2000 or similar formal IRS notice (not just an email or call). When you take a 401k withdrawal for a home purchase, you still owe regular income tax on the withdrawal (though you might avoid the 10% early withdrawal penalty if it qualifies as a first-time home purchase). Your plan administrator typically only withholds 20%, which is often not enough to cover your total tax liability. You absolutely can get on an IRS payment plan. For amounts under $50,000, you can easily set up an installment agreement online. The standard term is 72 months, and interest/penalties will continue but at a reduced rate once you're on a plan. If this creates financial hardship, you might also qualify for an Offer in Compromise to settle for less than the full amount, or request Currently Not Collectible status if you truly can't pay.

I went through something similar last year with an unreported 1099-R from my IRA withdrawal. After trying to handle it myself and getting nowhere with the IRS phone lines, I tried using https://taxr.ai to analyze my notice and tax situation. It helped me understand exactly what happened (turns out my tax software didn't import one of my forms correctly) and showed me all my options. The system explained the payment plan details and even calculated what my monthly payments would likely be. The best part was it showed me I qualified for a first-time penalty abatement that saved me almost $2,000! Not sure if you qualify for any abatements, but it might be worth checking out - especially since dealing with 401k withdrawal issues can get complicated with all the different rules.

Just wanted to follow up - I actually tried taxr.ai after asking about it, and it was surprisingly helpful for my situation. I uploaded my CP2000 notice about some unreported stock sales, and it showed me that I actually had offsetting losses that weren't being considered. It walked me through exactly how to respond to the IRS with the correct documentation, and my $7,200 bill got reduced to just $1,800! Plus it showed me how to set up a payment plan online with minimal hassle. Definitely worth checking out if you're dealing with an IRS notice.

If you're going to contact the IRS about this, prepare yourself for a nightmare. I spent HOURS trying to reach them about a similar issue last month - kept getting disconnected or waiting on hold for literally 2+ hours. Finally, I found this service called https://claimyr.com that got me through to an actual IRS agent in about 20 minutes. They basically hold your place in line and call you when they get an agent. I was super skeptical, but you can see how it works in this video: https://youtu.be/_kiP6q8DX5c Once I actually talked to someone, I was able to get on a payment plan pretty easily AND they reduced some of my penalties since it was my first offense. Might save you a lot of frustration.

Alright I need to apologize to everyone. I tried Claimyr after being completely unable to reach the IRS for a week straight. It actually works exactly as described - got me through to an IRS agent in about 25 minutes when I had previously spent HOURS getting nowhere. The agent helped me set up a payment plan for my tax bill and even removed some penalties because it was my first time having an issue. Saved me over $800 in penalties alone. I'm still in shock that I got through so quickly after all my previous failed attempts. To the original poster - definitely worth considering if you need to talk to someone at the IRS about your payment options. Saved me a ton of stress and time.

One thing nobody's mentioned - you might want to check if you qualify for the first-time homebuyer exception for early 401k withdrawals. You still have to pay income tax on the withdrawal, but you can avoid the 10% early withdrawal penalty if you used the money for qualifying first-time home purchase expenses (up to a $10,000 lifetime limit). If you're under 59.5 years old and the IRS included that 10% penalty in their calculation, you should definitely dispute that part of the notice by showing documentation that the money went toward your home purchase.

I got a huge tax bill for not reporting my Robinhood stocks a couple years ago. The penalty and interest were insane! I called the IRS and asked for a first-time penalty abatement since I had no previous tax issues. They removed over $2,000 in penalties just like that. You should definitely ask about this! The worst they can say is no, but if you've had a clean tax record for the past 3 years, there's a good chance they'll approve it.