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Penalty of Early Withdrawal of Savings

 
How does the penalty of early withdrawal of savings work?

If you withdraw money from a time deposit savings account (such as a certificate of deposit) before the maturity date, your financial institution may charge you a penalty of some of the interest your received.

Are penalties for early withdrawals of savings tax deductible?

While you must report as income the entire amount of interest earned, you can deduct the amount of the penalty as an adjustment to income.

What tax forms are used to report the penalty of early withdrawals?

Generally, Form 1099-INT, Interest Income, which reports your taxable interest, also reports the early withdrawal penalty in box 2.

You must enter the penalty reported in box 2 on line 30 of Form 1040.

Penalty of Early Withdrawal of Savings

Is there a limit of how much I can deduct penalties of early withdrawals?

There is no limit on the amount you can deduct.


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