What are the tax consequences of taking a Hardship Distribution?
Hardship distributions are not subject to mandatory tax withholding by the employer. However, the distribution is taxable as ordinary income in the year that distribution is taken. You will receive a Form 1099-R in January of the year following the year in which the distribution takes place. In Box 7 of Form 1099-R, the Distribution Code will be a 1, which indicates hardship distributions, are subject to a 10% early withdrawal penalty by the IRS, which is paid when filing Form 1040.
