Penalty on Early Withdrawal of Savings

[mlbrenne1]

Why does the TurboTax desktop software for 2023 add the penalty from Form 1099-INT to taxable income? After inputting the penalty from the 1099-INT, the amount is positive and gets added to taxable income, not subtracted. Further, you can't make the figure a negative value when inputting either. Is this a software error?

[SteamTrain]

Tried it on my Windows 11 Premier software.

Entering $34 in box 2 of a previously entered 1099-INT, dropped my taxable income by $34.

[AnnetteB6 · Accepted solution]

The early withdrawal penalty is not directly subtracted from your interest income and it is not reported on Schedule B.  Instead, it will be reported on Form 1040 Schedule 1 line 18 as an adjustment (subtraction) to your income.

When you see take a look at your Form 1040, the amount from Schedule 1 is reported on Line 10.  Then, Line 11 is calculated by subtracting Line 10 from Line 9.  

If you do not see that the number is being subtracted, please share details about which TurboTax product you are using.  

@mlbrenne1