U.S. · Tax forms
1099-INT box 2, early withdrawal penalty.
Forfeited interest or principal on a CD, and why box 1 stays whole.
Box 2 of Form 1099-INT shows interest or principal forfeited because of an early withdrawal of a time deposit, such as a certificate of deposit, that is deductible from gross income by the recipient. The instructions say not to reduce the box 1 interest by the forfeiture.
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Result
What the instruction says
Enter interest or principal forfeited because of an early withdrawal of time deposits, such as a CD, that is deductible from gross income by the recipient. Do not reduce the amount reported in box 1 by the amount of the forfeiture. For detailed instructions on the amount of forfeiture deductible by the depositor, see Rev. Ruls. 75-20, 1975-1 C.B. 29, and 75-21, 1975-1 C.B. 367.
Why two boxes
Because box 1 is not reduced, the form shows both the interest credited and the penalty. A reader who nets them by eye would get a number the payer never reported.
Backup withholding
For payments on this form, the backup withholding applies to amounts required to be reported in box 1 (which may be reduced by the amount in box 2), box 3 and box 8. The rate is in part N of the General Instructions for Certain Information Returns.
Form 1099-OID
For CDs with OID, Form 1099-OID has its own box 3 early withdrawal penalty. Its instruction is the same in substance: do not reduce the amounts in boxes 1 and 2 by the forfeiture.
Worked example (made-up figures)
A saver cashes out a 3-year CD early. The bank credited $420 of interest and charged a penalty of $90 that took back interest and principal. Box 1 shows $420 and box 2 shows $90. Box 1 is not shown as $330.
Related decoders
More 1099 interest and dividend box pages: 1099-INT box 3, 1099-INT box 11, 1099-INT box 10, 1099-DIV box 2a, 1099-OID box 8. For the 1099-R box 7 codes see the 1099-R distribution codes lookup.
Sources
- Instructions for Forms 1099-INT and 1099-OID (01/2024): the box-by-box section for this form. Read November 2, 2026. The IRS page was last reviewed April 30, 2026.
Edition read: Instructions for Forms 1099-INT and 1099-OID (01/2024). These instructions are continuous use and are updated as needed, so check the current version before relying on a detail. This page summarizes the instructions and does not replace them; the worked example uses made-up figures.
Frequently asked questions
What is box 2 on a 1099-INT?
Interest or principal forfeited because of an early withdrawal of a time deposit, such as a CD, that is deductible from gross income by the recipient.
Is box 1 reduced by the penalty?
No. The instructions say not to reduce box 1 by the forfeiture.
Where does an early withdrawal penalty on a CD with OID go?
In box 3 of Form 1099-OID.
Who determines the deductible amount?
The instructions refer to Rev. Ruls. 75-20 and 75-21 for the detailed rules on the deductible forfeiture.
Does backup withholding use box 1 or box 2?
Box 1, which may be reduced by the amount reported in box 2, together with boxes 3 and 8.
Not tax advice
This page summarizes IRS instructions, mostly written for the people who prepare the form, and is not tax, legal or financial advice. The payer, a CPA or an enrolled agent can confirm what a box means for your return. Everything runs in your browser; nothing you enter is sent anywhere.