Is 1099-MISC taxable non-tuition stipend acceptable income for Roth IRA contribution?

[rchancia]

I have a 1099-MISC with 20,090 of income from a taxable non-tuition stipend. I made less than $6000 in other W2 income. When I enter that I contributed $6000 to my Roth IRA in 2020 I am warned that I have made excess contributions and will face a penalty.

However:

H.R.1865 - Further Consolidated Appropriations Act, 2020 (116th Congress Public Law 94) Section 106 states:

SEC. 106. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND 
                        PAYMENTS TREATED AS COMPENSATION FOR IRA 
                        PURPOSES.

    (a) In General.--Paragraph (1) of section 219(f) of the Internal 
Revenue Code of 1986 is amended by adding at the end the 
following: <<NOTE: Definition.>>  ``The term `compensation' shall 
include any amount which is included in the individual's gross income 
and paid to the individual to aid the individual in the pursuit of 
graduate or postdoctoral study.''.

    (b) <<NOTE: 26 USC 219 note.>>  Effective Date.--The amendment made 
by this section shall apply to taxable years beginning after December 
31, 2019.

Should I just ignore the warning of a penalty for excess contributions and proceed with filing, or is there some way I can indicate the 1099-MISC box 3 income is specifically a taxable non-tuition stipend? Or does TurboTax simply not recognize this recent amendment to the tax code?

Thanks!

[ThomasM125]

If you report the income as wage income, you will be allowed the ROTH IRA contribution. You can do this by entering it as scholarship income, which seems more appropriate.

You will need to leave the form 1099-MISC entry in and enter a negative adjustment to cancel it out as follows:

1. Federal
2. Income and expenses
3. Less common income
4. Miscellaneous income
5. Other reportable income

Enter a description for the entry (Reclass Sch Inc?)  and the amount as a negative number.

You will enter your the compensation as scholarship income as follows:

1. Deductions and credits
2. Education
3. Expenses and Scholarships (Form 1098-T)

Indicate that you don't have a form 1098-T and skip everything except for the scholarship income entry.

[rchancia]

Thanks Thomas,

Just to clarify, I enter "Reclass Sch Inc?" as the description for other reportable income?

Also, I do in fact have a 1098-T form where box 1 (payments received for qualified tuition and related expenses) equals box 5 (scholarships or grants), but neither of these amounts is related to the 1099-MISC documenting the amount I was paid as a stipend. Other than indicating I am a full-time graduate student, the 1098-T contains no other relevant information. Does that change anything? Is it still okay to indicate I do not have a 1098-T and proceed with your instrucitons?

Thank you so much for your help!

[MarilynG1]

If you are not claiming an Education Credit (which applies to your situation), you don't need to enter the 1098-T in your return.

Just keep it for your records.

Click this link for more info on Taxable Scholarships.