The penalty for early withdrawal from a bank account is an adjustment to income. That means it is subtracted from income when calculating AGI.
The penalty is in box 2 of the Form 1099-INT that you get from the bank. In TurboTax, on the screen where you enter the 1099-INT, check the box that says "My form has info in more than just box 1. Then you can enter the penalty amount in box 2. TurboTax will put it in the proper place on your tax return. The penalty will appear on Schedule 1 line 18 and will be included in the total adjustments to income on Form 1040 line 10.
