IRA contribution with contractor income reported on 1099NEC

[robertwhogan]

Hi ..I am using Turbotax Desktop 2020 for MacOS. I am seeing what I believe is a bug in the handling of self employment income reported on Form 1099-NEC. This income CAN be used for a Traditional (or Roth) IRA contribution but Turbotax does not recognize it as earned income. It is trying to get me to sign up for a penalty for excess contribution which I ought not owe. Is this going to get fixed in an update? I saw some workarounds from past years for this issue but they involved working in a section of income called "Self employment income" and I do not see this category under Wages and Income.

Robert

[LinaJ2020]

Form 1099-NEC is not for reporting an IRA contribution. Most of the time, it is for taxpayers who have done independent contract work and received more than $600 nonemployee compensation.  IRS will consider you as self employed and require you to pay self employment tax.  If you have made a distribution from your IRA account, you should be receiving a Form 1099-R.  If it is only for reporting an IRA contribution, you should receive a Form 5498. Click here: 5498

If you have made a contribution to a traditional IRA, you have an option to take a deduction on your tax return.  If it's a Roth IRA, no deduction is allowed.  To see details, click here: https://www.irs.gov/retirement-plans/traditional-and-roth-iras

To enter your IRA deduction, click here: 

In TurboTax online,

• Sign in to your account and select Pick up where you left off
• From the upper right menu, select Search and type in ira contributions and Enter
• Select the Jump to 
• Follow prompts to enter your contribution amount.

The deduction will show on line 10A of your Form 1040 ( carried over from Schedule 1 line 19)

I will suggest you to contact your fidelity for a corrected 1099.  

For more information about 1099-NEC, click here: What is a 1099 NEC ?

To see the IRS explanation, click here: https://www.irs.gov/pub/irs-pdf/f1099nec.pdf

[dmertz · Accepted solution]

Delete the Form 1099-NEC, then make sure that you enter the Form 1099-NEC under your business.  Entering it under Other Common Income does not work at all because doing so does not permit TurboTax to create the proper linkage to the business.

The many problems in TurboTax associated with Form 1099-NEC are new for 2020 because Form 1099-NEC is a new form for 2020, split off by the IRS from Form 1099-MISC.

[robertwhogan]

Thanks this resolved the incorrect "excess contribution" logic.

Definitely not obvious from the top level Income menu captioning since 1099NEC is mentioned in a separate section from Business Income but works fine to delete it and recapture under Business Income.

[susan58]

i have tried to delete and reenter in self employment area but tt is still not giving me roth ira deduction.  Any further suggestions?

[VolvoGirl]

A ROTH IRA contribution is not deductible.  Only Traditional IRA contributions are deductible.  And If you only have self-employment income the most you can contribute is the Net Profit minus 1/2 the SE tax.

[hkc]

Hi:

I am doing an estimated 2021 tax using 2021 Turbotax (before receiving any forms).  When I reported this income ($1030) under Business (so that I can get my IRA contribution deduction of $900), it generates a Qualified Business Income Deduction of $191 which is added to my total itemized deduction.  I did not enter any business deduction myself.  Should I leave it there or try to 0 it out?  Is that even possible?  This is weird as the total deduction is now 900+191=$1091 which is more than the income of $1030?

In 2020, I reported it under 1099-NEC and had no problem with the IRA deduction, but the 2021 Turbotax doesn't recognize income from 1099-NEC and consider my IRA contribution as excess contribution.

Thanks very much

Kim

[KrisD15]

The 191 represents the Qualified Business Income Deduction. 

The TurboTax software calculates this deduction. It cannot be zero-ed out. 

It is based on the business income. 

1030 in Self-Employment Income equals about 952 net earnings.

The Qualified Business Income Deduction lowers the amount a Self-Employed taxpayer can contribute to an IRA. 

If you have 952 net earnings and QBI of 191, you would not be able to contribute a full 900 to an IRA. 

If you have TurboTax Desktop, you can look at the worksheets to see the calculation. 

More information about QBI and Retirement Accounts