An amount entered in Box 2 of Form 1099-INT represents interest or principal forfeited because of early withdrawal of time savings. An amount included in this box will automatically carry to Form 1040, Schedule 1, Part II, Adjustments to Income.
This kind of penalty might also be included on a Schedule K-1 in the following boxes:
- 1120S Schedule K-1: Box 12 “Other Deductions” with code S
- 1065 Schedule K-1: Box 13 “Other Deductions” with code W
Since these K-1 boxes and codes are used for many different deductions, the amount entered in the Schedule K-1 entry screen do not carry automatically to any form or schedule but need to be entered in the appropriate place by the preparer.
To enter a deduction on a K-1 representing a penalty for early withdrawal of savings, first enter it in the Schedule K-1 entry screen in the appropriate box for the K-1. Then, from the Main Menu of the tax return (Form 1040) select:
- Adjustments Menu
- Penalty on Early Withdrawal of Savings
Enter the K-1 amount in the adjustment field. It will be added to the penalties included on Form 1099-INT, if any.
NOTE: This is a guide to entering the penalty on early withdrawal of savings into the Keystone Tax Solutions Pro program. This is not intended as tax advice.