Do I need to pay taxes on $20K I rolled over into an IRA and cashed out.?

I am a foreign national and lived in Mexico when this happened after my layoff. I had to use the money for a surgery and other basic stuff cause I didnt have a job. If I have to pay taxes, how could I minimize the impact of the amount of taxes I have to pay the IRS?

This was my only income that year. 20K.

You will have to file a tax return. If you did not meet the substantial presence test, then you would file a 1040NR. You will have to report the IRA and attach a form 5329. This goes on line 16b.

You will get to claim $3400 for your personal exemption. This will leave your taxable income as 16,600 and probably a tax bill of $2100.

Unfortunately, you could owe up to another $2000 in penalty on line 55 if you are under the age of 59.5. You would also attach form 5329.

If you had say $5000 of unreimbursed medical expenses, you could exclude $3500 on the form 5329 ($5000 - 7.5% of $20000) which would reduce the penalty by $350 to $2650.

Yes but if you aren't in the USA and not American I don't think they will catch you unless you try to come back to our country. If you are under 59.5 you will have a 10% penalty besides the tax.

Yup, you'll have to pay normal income tax plus a penalty if you are not of retirement age. Unless you get it back into a retirement account.

As I understand, yes. You are liable for income tax and, if you are under 59.5 years old, you also have to pay a 10% penalty.
As far as I know, there is no way for you to minimize the tax consequences of cashing out your IRA.

V.B. is right. annah618 is completely wrong. You cannot put the money back into the IRA and avoid paying taxes. There are specific rules that preclude you from ever taking possession of the money in an IRA other than as a withdrawal. When one transfers from one custodian to another, the check is given to the new custodian. If you were to put the check into your personal checking account and then write a check for the same amount and deposit it in your new IRA account, you would still be liable for taxes and the 10% penalty.

If you cashed it out, yes you have to pay tax on it, including a 10% penalty for early withdrawal if you are under age 59-1/2.

You will receive a 1099R and are required to file a US tax return and pay income taxes on the amount withdrawn. In addition, you are subject to a 10% penalty if you are under age 59.5.

I am assuming you are not going to be able to itemize. However, you don't have to itemize to reduce the 10% penalty on your withdrawal.

Figure your medical expenses. Any amount that is in excess of $1,500 will reduce your penalty. This is figured on Form 5329.