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You have to put the full 10K back. You should get a 1099-R documenting the withdrawal. It will also indicate that $1K was withheld for taxes.

Assuming for now that all transactions were in 2001, you will report the $10K distribution on Line 15a (all Line numbers are from this year's 1040) and $0 on Line 15b (taxable distribution). The $1K withheld will be added to your other withholdings on Line 58.

If you only return $9K, the other $1K will be subject to the penalty.

The only way to get the $1K back now is to adjust your withholdings through your W-4 (or estimated taxes) to recover the $1000. You can't just write the IRS a letter and ask for the money.


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