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EWP Early In The Year

CDearner
  |     |   7 posts since 2021

Understand that EWP comes right off the CD interest earned each year.

But what if the CD is closed out early in the year, and the interest earned that year is less than the EWP? I suppose you could subract the remaider of the EWP from interest earned on another CD that year, if you have any. If you don't, does it make sense to wait until interest earned for that year is greater than the EWP, if possible?

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Answers
LongTimeDAFan
  |     |   69 posts since 2022
Your interest is shown in Box 1 of your 1099-INT, and your EWP is shown in Box 2 on the 1099-INT. Box 1 totals up your interest income and is reported on your income tax return as income. Box 2 is totaled up under your deductions, not as an offset to your income. I am not an accountant, but this is how TurboTax processes those numbers. The EWPs don't show up on the TurboTax income totals page but are deducted like your other "above the line" deductions.

I had several 1099-INTs with EWPs, and while I had input those Box 2 numbers, the total of those EWPs did not show up in my totals until I was finished with entering everything else, and then they showed up on the deduction totals page. I was sweating it for a while, wondering where my EWPs went - !

Again, I'm not an accountant, but from what I can see in TurboTax, your EWPs should be a deduction straight off your income irregardless of how much interest income was reported that year. Someone else may be able to explain it better, but that's my 2 cents.
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buckeye61
  |     |   454 posts since 2011
Good summary!
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Choice
  |     |   937 posts since 2020
Some/most FIs do not take the EWP solely from interest earned…why do you understand otherwise?
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CDearner
  |     |   7 posts since 2021
Yes it may in part come from the principal. But if the CD is broken early on the year, the interest earned that year may be less than the EWP.
Thus cannot use the entire EWP to offset interest you didn't earn that year on that CD. Better have some other interest that year to subtract the rest of the EWP from.
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me1004
  |     |   1,379 posts since 2010
Well, banks can set thjeir rules as they want. However, I have never heard of the EWP being limited to interest earned in the year in which you make the withdrawal. The amount of EWP is generally detereined by how much you would earn in interest, at the rate not the APY, for a specified period of time, and that much is taken.

gain, I have never heard of how much being taken is limited by how much interest you earn that year. If anything, it is taken from interest earned ever since you opened the CD. But yes, as Choice says, most speicify that if you close it before you have even earned enough to cover the EWP, it will come from your principle. I do think some leave it so if you close it shortly after opening it, they might take no more than the interest you had earned. But that has nothing to do with the calendar year, and that it not the circumstance you are suggesting.
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