Does a penalty for early withdrawal count toward interest income?

[DoninGA]

NO.  The early withdrawal penalty is not interest income.

[rjs]

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.

[jgeller11]

I'm doing my 2022 taxes and had a penalty on a Bank CD. I entered numbers in box 1 & 2 from my 1099. However on line 18 of Schedule 1 is a positive income number as is it on Line 10 on my 1040. TT will not allow me to enter as a negative number on the 1040. In essence it's calculating taxable income at TWO TIMES the penalty amount!!

[DawnC]

No, the interest is added on line 2 of Form 1040 and the penalty paid is deducted on Schedule 1 which gets transferred to Line 10 of Form 1040.    A positive number there is a subtraction.   See Form 1040 - Line 11 = Line 9 minus Line 10.    It is decreasing your taxable income.  @jgeller11