On Form 1099-INT, Box 2 (Early withdrawal penalty) we have an amount. Will this help any. If so, where do we enter this amount?

[AndreaG]

Yes. The early withdrawal penalty is an adjustment to income so it will reduce your gross income which reduces your adjusted gross income. When you enter your 1099 INT into Turbo Tax, the early withdrawal penalty will automatically be reported as an adjustment to income on your Form 1040.

Please refer to the following FAQ for instructions on how to enter your Form 1099-INT. https://ttlc.intuit.com/replies/3300478

After you enter your Form 1099-INT, you can use these instructions to check your Form 1040 line 30 

• Log in to your Turbo Tax account
• click on "take me to my return"
• Click on "my account" tab at the very top of the screen
• Click on "tools"
• Click on "view tax summary"
• Click on "preview my 1040". This is part of a narrow white bar at the very top of the screen
• When your 1040 form appears, you will be able to scroll through and look at the individual line items.
• Click the "back" button when you want to return to your main Turbo Tax screen. The back button is part of a narrow white bar at the very top of the screen.

[natashamorales17]

what is the tax treatment for a cd penalty that was assessed in a prior year (e.g. 2021) and then identified as an error in 2024? are corrected 1099's required or do we issue a 1099 INT for the year the money was refunded? 

[JotikaT2]

Usually, banks or financial institutions where your CD was held would issue the 1099-INT form so not sure why you as a customer would issue a 1099-INT.  I'd recommend contacting the financial institution or bank where the CD was held to find out whether they would be planning to issue a corrected 1099-INT for the tax year where the penalty was initially assessed or if they will issue a 1099-INT for the year when the penalty was reversed.  

Since tax returns are typically prepared on the cash basis, it would make sense that they would issue a 1099-INT for the year of repayment, but verifying with the bank is your best way to confirm.

@natashamorales17