Yes, withdrawals from annuities are still taxed as ordinary income if you withdraw early and pay a surrender charge. Any amount of money received from an annuity before the age of 59 1/2 may be taxable and subject to an additional 10 percent penalty tax. Withdrawals after age 59 1/2 are generally not subject to the 10 percent penalty tax but are still subject to ordinary income taxes. It is essential to consult a tax professional when making decisions about withdrawals and annuities to ensure you know all relevant tax implications.