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.
