If a taxpayer withdraws his or her deposit on a CD before the instrument matures,the penalty for the early withdrawal on interest will be reported by the financial institution:

Question

Quizplus · Accepted Answer

The financial institution will report the penalty for early withdrawal of interest on a CD in Box 2 of Form 1099-INT that is sent to the taxpayer. This is a common practice, and the taxpayer should report the penalty as part of their taxable income for the year in which it was received. Options A and C are not valid forms or methods for reporting the penalty, and Option D is not a valid response.

If a Taxpayer Withdraws His or Her Deposit on a CD