I am on a NIH T32 grant and pay quarterly taxes. I have opened a Roth IRA. Turbotax is reporting my earned income as 0, and saying I have over-contributed to my IRA.

[lydiaso]

I am trying to find out why it is reporting my income as zero; I entered it in Misc. income (form 1099). I have not over-contributed in reality, as I make less than 124K and contributed less than what I made in the quarter, withing the yearly limits. Any ideas on how to make Turbotax recognize this situation? Thanks!

[Critter]

Many academic and government institutions, along with certain research programs, will report taxable fellowships and stipend income in "nontraditional" ways.  It would be really helpful if all parties involved would take the time to issue actual tax documents, but not all of them do.  It's certainly not an uncommon occurrence; but yes, the fellowship income you received is still considered taxable compensation.  As such, you do (legally) need to declare it and report it on your income tax return, even if it didn't come with a W-2 or a Form 1099-MISC.

This can be accomplished in the TurboTax program, both in the online (web-based) software as well as in the desktop versions of the program.

The mechanical steps to do so are outlined at the following AnswerXchange post from a few years ago:

https://ttlc.intuit.com/questions/2638576-how-to-report-a-fellowship-stipend

When done correctly it should appear on your tax return, as an additional figure on the wages line, with the appellation "SCH."  This income, so reported, is subject to ordinary income taxes, but not to Social Security and Medicare taxes.

[Hal_Al · Accepted solution]

If you don't pay Social Security and Medicare tax on that income, it doesn't count as earned income/compensation for purposes of being eligible for a IRA contribution.  

If you report the income, on line 1 of form 1040, with the "SCH" notation, you do not qualify for an IRA contribution (Neither Roth or Traditional).

To qualify for a IRA contribution, you need to enter the income as self employment and pay Social Security and Medicare taxes (as "self employment tax").

[lydiaso]

Thank you! I've done that now and I understand it much better as a result of your reply. I appreciate your help.

[typhoidjohnny]

Is there an update for this for 2020 tax year? As of 2020, postdocs can have a Roth IRA with a T32 salary. 

[Hal_Al]

@typhoidjohnny 

Yes. 

the SECURE act included a provision that stipends for graduate students and postdoctoral fellows that meet certain conditions are treated as "compensation" for purposes of contributing to an IRA, even though they are not "earned income" for any other purpose.  https://www.forbes.com/sites/simonmoore/2019/12/23/if-youre-a-graduate-student-the-secure-act-makes-...

The trick is entering it correctly in Turbotax, which apparently requires going through the Education deduction interview instead of the 1099 income interview