I paid a penalty for withdrawing money early from a cd in my IRA account. How do I deduct the penalty?

[KrisD15]

The penalty tax will be listed on your 1099-R. 

When you enter the 1099-R, that penalty tax will be entered as well. 

You don't really get to "Deduct the penalty" but it will be included as tax you already paid. 

If this was a penalty on a CD in an IRA, the penalty may have lowered the value of the IRA. In this case, you simply lost value because you did not adhere to the terms of the CD. That wouldn't be considered as tax, so there would be nothing to report. 

If this is something else, please continue your question with a little more information. 

@user1950611

[Edited 04/14/2024 I 3:46pm PST ]

[VolvoGirl]

If the IRA charged you a penalty that is not deductible.  If you are referring to the 10% Early Withdrawal Penalty that is not deductible either unless you have an exception to the penalty.

You just enter the 1099R and the tax withholding.  What did you do with the withdrawal?  Did you roll it over to a new IRA account?

You didn’t actually pay the tax or the 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You had taxes withheld like from your paycheck. You still have to enter the whole gross amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b. The withholding will show up on 1040 line 25b.

It has to break out and show the 10% penalty separately on your return (schedule 2 line 8 which goes to 1040 line 23). Then you get credit for all the withholding taken out on 1040 line 25b.