I have a penalty for early withdrawal of a CD - on page 18, Investment income, it states that I can deduct the amt on schedule 1, line 18 - where do I enter this in TT?

Forum|Forum|3 years ago
February 19, 2023
2 replies
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TurboTax Deluxe Online

Best answer by Monikak11

Expert Reviewed

Yes, you can deduct the early withdrawal penalty - but only for a taxable CD. When you enter the interest income on Form 1099-INT, check the box beside 'My form has info in more than one box 1'. Then enter the penalty in box 2. That will reduce your adjusted gross income by the penalty amount.

For a CD that is held within an IRA, there is no taxable event and nothing to deduct.

Any early withdrawal penalties will be included in box 2 of your 1099-INT form from the issuing institution and clearly labeled “early withdrawal penalty.”

Monikak11Answer

Level 2

Expert Reviewed

For a CD that is held within an IRA, there is no taxable event and nothing to deduct.

Any early withdrawal penalties will be included in box 2 of your 1099-INT form from the issuing institution and clearly labeled “early withdrawal penalty.”

whaagAuthor

Level 2

Thank you, issue solved. I was not aware of 'checking the box" that would give me those options. May I ask you one more question? I cashed in a mature EE bond in 11/22. I know that tax is due on the interest (8K), I have entered info correctly, but TT shows that I have a penalty for underpaying my estimated taxes. I do not estimate any taxes, I am concerned that TT may not be handling this correctly.

RalphH1

Level 6

The IRS calls it “Underpayment of Estimated Taxes,” but that can be a little misleading. While the penalty (reported on Form 2210) is more commonly incurred by self-employed people who do make estimated payments (or should), it’s also relevant for anyone who underpays their taxes during the year (with a withholding plus refundable credits total which is $1,000 less than the tax liability on their return). The IRS gives a summary of this here.

Note that there are some nuances to this. If your income suddenly jumped (hopefully because you won the lottery) this year, you can avoid the penalty by having withholding and refundable credits equal to last year’s tax. You can also possibly reduce the penalty (with the “annualized method”) if you income was inconsistent (especially if it was significantly higher later in the year). TurboTax will explore these things with you to make sure the penalty is correct, @whaag, but hopefully I’ve answered your most recent question.

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IntuitiveInvestor

Level 2

If you received a 1099-INT for the CD, the early withdrawal penalty should be listed in Box 2 (“Early withdrawal penalty”). TurboTax usually asks about this automatically when you enter your 1099-INT.

In TurboTax Online, you can enter it by:

Going to Wages & Income
Selecting Interest and Dividends
Choosing Interest on 1099-INT
Entering your 1099-INT exactly as shown, including the amount in Box 2

TurboTax will then apply the penalty as an adjustment to income (Schedule 1, Line 18) automatically — you don’t enter it separately anywhere else.

If you didn’t receive a 1099-INT showing the penalty, you may need to contact the bank to confirm it was reported correctly.

As a side note, if the penalty came from breaking a CD early because you found better rates elsewhere, it can sometimes help to compare terms and rates before committing. A CD marketplace like CD Valet lets you see over 40,000 verified CD rates across banks and credit unions in one place, which can make it easier to avoid needing to break a CD early in the first place.

Hope that helps!