Error in TurboTax handling of (new) Schedule 1 line 8r scholarship income for determining IRA contribution limits

[Atf1]

Hi,

There have been some major changes to Form 1040 line 1 for tax year 2022, and taxable scholarships are now reported on Schedule 1 line 8r rather than with the 'SCH' annotation on Form 1040 line 1.

The definition of "taxable compensation" for purposes of determining the IRA contribution limits has not changed for 2022 in IRS Publication 590-A. Taxable scholarships are still included (not just earned income). This is important in situations where, for example, a graduate student has no earned income but a large taxable stipend. That student should be able to make IRA contributions without penalty (since tax year 2020).

In TurboTax 2021, it was possible to report the scholarship on line 1 and get correct treatment of IRA contributions (i.e., no penalty). That seems to no longer be the case in TurboTax 2022!

The issue may have to do with line 2 of the IRA Deduction Worksheet ("wages and other earned income") not taking into account the taxable scholarship amount from Schedule 1 line 8r. Again, IRS Pub 590-A makes clear that taxable scholarships are considered "taxable compensation" for IRA purposes (and, despite the language on the worksheet, "earned income" is not the relevant income concept for determining the IRA contribution limit!).

While this error persists, I am unable to use TurboTax for my personal taxes, as it misclassifies my IRA contributions as excess when they are not.

[Anonymous_]

@Hal_Al 

[fanfare]

"not changed for 2022 in IRS Publication 590-A. "

IRS has not yet  released  590-A for 2022 tax returns.

[NCperson]

it is available in draft form

https://www.irs.gov/pub/irs-dft/p590a--dft.pdf

[Hal_Al]

@Atf1   TurboTax is aware of this and is working on an update.

In the past, it was important that you check the  Grad student box at the 1098-T screen to insure TT treated it as  "taxable compensation" for purposes of determining the IRA contribution limits. I suspect that won't change. 

[Anonymous]

Has this been fixed yet?

[Atf1]

Any update on this? (We're getting into tax season and this error means I can't use the Premier product I paid for.) Thanks!

[Sswick]

Any update? I am a postdoctoral researcher who was paid in fellowship entirely this past year, and I when I report my IRA contribution, it flags it as excess and charges me 6%. It has been months now, has this issue been resolved? I can't use my premiere product that I paid for until this is resolved.

[Atf1 · Accepted solution]

I think this is clearly grounds for a refund. Overzealous and incorrect assessment of penalties, even months later on latest update, would seem to trigger each of the below:

• TurboTax Accurate Calculation Guarantee – Individual Returns
• TurboTax Maximum Refund Guarantee – Individual Returns
• TurboTax Satisfaction Guaranteed (or Guaranteed Easy)

(Source: Terms of Service)

So choose your own adventure. I got a refund for my software already via the retailer. TurboTax has ample resources and only one job to do...

[Hal_Al]

Here's a containment that was just made for this issue. 
https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/fellowship-stipend-a...

[Chex_Max]

The link doesn't work anymore

[Hal_Al]

The issue has  now been fixed.

[rcourt3630]

Hi, Do you know if there a solution to this as of yet?? I would very much like to file as it is already March of 2023 and want to make $6000 Trad Ira contribution

[rcourt3630]

This HAS NOT BEEN FIXED yet!!  Please reopen this case...so frustrating.

[Chex_Max]

I updated my desktop version of TT (Premier) an hour ago and issue was fixed. Please make sure that you are entering the scholarship income in line 8r of the Schedule 1. You might have to access the forms within TT software in order to do that.