Earned Income

Forum|Forum|4 years ago
March 30, 2022
3 replies
25 views

I'm not sure if I have "earned income" or not.

On my W2, I have $30000 in box 1 and $30000 in box 11. I have no other earned income. Does that mean that I can or cannot make a contribution to my IRA?

Opus 17

Level 15

No. Compensation for contributing to an IRA is defined as wages (box 1) minus box 11 (qualified plans). So your compensation is zero. Since box 11 is usually used for a deferred compensation scheme, you would have had compensation for IRA purposes in the year the income was earned, not in the year it is paid.

See https://www.irs.gov/publications/p590a#en_US_2021_publink1000230355

What Is Compensation?

Generally, compensation is what you earn from working. For a summary of what compensation does and doesn’t include, see Table 1-1. Compensation includes all of the items discussed next (even if you have more than one type).

Wages, salaries, etc.

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans).

JohnB5677

Level 15

Opus17 is entirely correct

IRS Retirement Topics - IRA Contribution Limits

Edited 03/31/2021

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dmertz

Level 15

Opus 17 is correct, this is not compensation that will support an IRA contribution. The compensation on the W-2 that will support an IRA contribution is the amount in box 1 minus the amount in box 11. In this case, $30,000 minus $30,000 = $0.