1 thing that might help clarify the bigger picture is that early withdrawal penalties on CDs are generally deductible as an adjustment to income, even if the bank doesn’t clearly report them the way you’d expect. The irs allows you to deduct the penalty because you’re being taxed on the interest earned, and the penalty effectively reduces that gain.
If the bank didn’t include it on the 1099-INT, it’s still important to keep documentation showing the penalty amount (statements showing the withdrawal and fee), just in case there’s ever a question.
NExt time you're looking at CDs, it can also be worth reviewing early withdrawal terms before opening one. Penalties can vary quite a bit by institution and term length. Some comparison tools, like CD Valet, let you review rate details and penalty structures across banks and credit unions so you can see what the downside looks like before committing.
Hope that helps
