Penalty on Early Withdrawal of Savings

Depositors may withdraw funds from an ordinary savings account any time they wish. However, if they withdraw funds from a time deposit, such as a certificate of deposit, before its maturity date, they must pay a penalty.

Form 1099-INT, box 1 reports the interest earned and box 2 reports any early withdrawal penalties.

Taxpayers can claim the penalty as an adjustment on Form 1040, line 30, or Form 1040A, line 16. The entire penalty is deducted, even if it is greater than the interest income.

	Taxpayers must report the total of all their interest earned. They cannot subtract the early withdrawal penalty from the interest total.