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For this reason, your employer is required to withhold 20 percent of the payout. In addition to paying income tax, you will owe an additional 10 percent penalty tax, if you take a lump-sum payout before age 59.
In general, distributions from qualified plans are treated as lump sums if the total plan balance is distributed over the same tax year, and if the distribution is made as a result of the employee: Attaining age 59 Being deceased (applicable to beneficiaries)
I.R.C. 4972(a) Tax Imposed In the case of any qualified employer plan, there is hereby imposed a tax equal to 10 percent of the nondeductible contributions under the plan (determined as of the close of the taxable year of the employer). I.R.C. 4972(b) Employer Liable For Tax
If you were born before January 2, 1936, you may be able to use IRS Form 4972 to reduce the taxes on a lump-sum distribution.
What Is a Qualified Lump-Sum Distribution? It is the distribution or payment in 1 tax year of a plan participants entire balance from all of an employers qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans) in which the participant had funds.
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If you were older than 59-1/2 before you received a lump sum from a qualified employee retirement plan, you may have some other options that can reduce your tax bill. To use any of these special treatments, you must complete IRS Form 4972, Tax on Lump-Sum Distributions, and attach it to your tax return.
4972. Tax On Nondeductible Contributions To Qualified Employer Plans. In the case of any qualified employer plan, there is hereby imposed a tax equal to 10 percent of the nondeductible contributions under the plan (determined as of the close of the taxable year of the employer).
Distributions to Alternate Payees. If you are the spouse or former spouse of a plan participant who was born before 1936 and you received a qualifying lump-sum distribution as an alternate payee under a qualified domestic relations order, you can use Form 4972 to figure the tax on that income.

form 4972 for 2021