If you withdraw funds from a Certificate of Deposit (CD) or other deferred interest accounts before maturity, you may incur a penalty by the financial institution holding the CD.
The Form 1099-INT or similar statement provided to you by the financial institution will show the total amount of interest in Box 1 and will show the penalty separately in Box 2. You must include in income all interest shown in Box 1. You can deduct the penalty (even if it is more than your interest income) on Form Schedule 1, line 17.
If you have trouble reporting your 1099-INT, please see our KB article.