As a musician, once a year I receive a check for residual payments for work done in prior years. This residual income is reported on a W2 and not a 1099-Misc. Per the fund that distributes these payments: "Musicians receive W2’s as they are receiving performance-based residuals. Residuals are categorized by the IRS as deferred wages, thus are subject to taxation."
I understand that in order to contribute to an IRA, one needs earned income from working. However if I did not work in 2021, and my only source of income are these residual payments, am I able to contribute to a Roth IRA with this money? In other words, are these residual payments earned income or unearned (passive) income?
This is where I am confused. Residual payments (like royalties) seems like passive income by definition; something one collects, but does not actively work for, since it is for work performed in past years. However, the fact that it is reported on a W2, does that make it earned income?
Thank you.
