Is a lump sum pension payment considered ordinary income?

Yes, it's ordinary.

You weren't taxed $500, you were withheld 20%. 10% for the penalty and 10% for income tax.

Unfortunately, 10% is probably *not* your tax rate. If your tax rate is higher, you will owe the difference.

The distribution will be shown on line 17a and 17b on your tax return for 2010. It will be deemed ordinary income and you will pay income tax at whatever your tax bracket is. You will also be responsible to pay a 10% early withdrawal penalty on the amount you received.

The $500 is required federal withholding taxes and is shown as a tax payment on your 2010 tax return.

If you received this amount within the last 60 days you can roll it into an IRA and avoid the tax and penalty. You would have to roll the amount received plus the $500 withholding into an IRA to avoid the total tax and penalty.

the 10% you speak of would be the penalty for early withdrawal if this pension falls into the subject of 401(K)'s, IRA's etc

and the $2500 will make a difference only on your gross income, how much it impacts your overall total

if you very little income, it probably won't make a lot of difference and possibly the $ 500 already withheld may be a refund to you

you at the instant are not offering sufficient ideas to respond to precise. frequently it somewhat is right to go backward and forward as lots of your pension as you are able to and take a lump sum, because of the fact the lump sum is the only somewhat tax loose money you will get. in case you took each thing as a conventional month-to-month pension fee you would be taxed in this. subject is you will could be careful with the money you're taking as a lump sum as you will could proceed to exist it. maximum folk could purchase an annuity with the money they leave to pay a pension. If everybody on your loved ones lives to one hundred and five and you assume to additionally. it may be properly worth staring on the pension decision. you're able to take suggestion it somewhat is according to all the ideas.

Yes, it is ordinary income. If it was tax-deferred account such as a 401(k), then the penalty also applies.