Yes, you would report the penalty amount as Miscellaneous income. It should be on your 1040 Line 8.
@MaryK4 Thank you for your reply. Ok so if I added it to income but not line 8 will I have to amend?
That's okay if the Miscellaneous Income is not on Line 8, as long as it is included in Income on your return. Since you didn't receive any particular tax document to report it, it can be added in various ways. Here's one way: