Box 2: Early withdrawal penalty—The penalty shown in Box 3 is applied when you withdraw a time savings, like a CD, early. Enter this amount as an adjustment to income on Form 1040, Schedule 1, line 18. Box 3: Interest on U.S. Savings Bonds and Treasury obligations—Report this inter...
It's easy to see IRS Form 1099 as representing a big liability since it reports income that hasn't already been taxed in the form of withholding.