1098-T fellowship income not being treated as taxable income for Roth IRA

[bmatty]

I am having an issue with the Turbotax software recognizing my 1098-T fellowship income as taxable income for the purposes of IRA contributions (the system currently says that my contributions are too high because I do not have a W-2, even though the federal government now counts graduate student non-tuition fellowship income for the purposes of IRA contributions, as per the Graduate Student Savings Act of 2019).  My institution only gives 1098-T to show my fellowship income (i.e., no W-2); they have done this every year and Turbotax has never had an issue with this. A turbotax staff member said it was an IT issue that would be resolved by the end of January, but it doesn't seem to be fixed. 

[HollyP]

It would be helpful to have a TurboTax ".tax2022" file that is experiencing this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions: 

At the top menu in the black line at the top of the page go to Online. 

1. From the menu, select Send Tax File to Agent. 
2. You will see a message explaining what the diagnostic copy is.  Click Send and then you will get a Token number. 
3. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

[bmatty]

Thanks, HollyP. My token number is 1065418.

I look forward to getting this resolved. Thanks!

[MichaelG81]

Yes, for fellowship income reported on a 1098T, it isn't currently allowing ROTH IRA contributions. This is currently confirmed as an issue and is actively being resolved.‌ Plus, for the 2022 tax year, taxable fellowship income is now being reported on Sch 1 line 8r.

Click this link to sign-up for notifications for progress updates. Rest assured, TurboTax is working on this issue for our customers. It may erroneously attach a penalty on your contribution lowering your refund or increasing your tax due, and stating you have an excess contribution based on fellowship income. Once fixed you will be notified. 

Lastly, thank you for your token number and help in notifying us about this issue.

@bmatty 

[goodebri]

I am replying to this thread with a different issue because I do not know how else to contact anybody at Turbo Tax. 

I sent a diagnostic file.  Token #: 1079184

The issue is Form 1040, line 1e amount of $2500 is correct.  However I believe this $2500 should be carrying over to NJ 1040, line 15 and to NY IT-203 line 1, NY State amount column and other corresponding state forms.

This $2500 was income earned in New York state as a resident of New Jersey.

Please correct me if I'm wrong.

Brian [removed]    [email address removed]

[RobertB4444]

Both New Jersey and New York tax dependent care benefits differently from the federal government.  You should go through your state return and answer any questions regarding dependent care credits very carefully and see if the credit is taxed on either of those returns.  

It is a very real possibility that depending on your income and a variety of other factors it may not be taxed on either of those returns.

Make sure to file the state returns with New York non-resident done first and New Jersey resident done second.

@goodebri 

[goodebri]

RobertB4444,

This same situation happened in 2021 and Turbo tax made it fully taxable in NY and NJ.  In 2021 that extra income was included in line 1 of Federal Form 1040 by default because there were no sub lines for wages as there are now for 2022.

I've done as you asked.  There are no specific questions on the New York forms concerning child care.  Apparently, it just goes off of the Federal Form 2441.  This Form 2441 has no child care expenses on it because there were none.  The only thing Form 2441 does is acknowledge the $2500 taken out (box 10 on the W2) and say it is fully taxable wages on line 1e of Federal form 1040. I believe this $2500 should be fully taxable wages for NY and NJ just like it is on the Federal return.

I can send you a diagnostic file for you to see.  I await your further conclusion. 

Thanking you in advance

Brian Goode

[email address removed]

[BillM223]

"The only thing Form 2441 does is acknowledge the $2500 taken out (box 10 on the W2) and say it is fully taxable wages on line 1e of Federal form 1040. "

Yes, the amount in box 10 on the W-2 is removed from Wages in boxes 1, 3, and 5, but each dollar must be accounted for by qualified dependent care spending.  Hence, why the box 10 amount is added back to income on line 1e of the 1040. From what I read on the NJ Treasury website, the dependent care FSA works the same way in NJ as on the federal return. No documentation on the expenses, no exclusion for the contributions to the dependent care FSA.

I have not yet looked at NY, but I wanted to make sure that I understood you. You say that there were no dependent care expenses, so the box 10 amount was added back to federal income. Are you saying that your NJ return is excluding (removing) this box 10 amount from your NJ income? How about NY?

[goodebri]

Yes I am saying that NJ and NY are excluding this box 10 income. There are no dependent care expenses at all. 

As I said before this exact same situation occurred in 2021 and NJ and NY included the box 10 income in their totals.

I believe it is a programming error.  In 2021 the 1040 only had a line 1 for all wages. In 2021 the program buried the unused box 10 amount into the total of line 1 on the 1040 with the box 1 wages. Line 1 of the 1040 is what carried to to line 15 in NJ1040 and to line 1 of NY IT-203 (Federal column and New York column). All the same number.

In 2022 the program puts the unused box 10 amount on line 1e of the 1040.  The other box 1 wages go on line 1a of the 1040.  The total is line 1z of the 1040. Line 1a carries to NJ line 15.  Line 1z carries to NY line 1 (Federal column).  Line 1a carries to NY line 1(New York column).

Adding all those extra lines on the 1040 is confusing the program. Both years should work the same.  I can send you diagnostic files of 2021 and 2022 if you need it.

[BillM223]

I wanted to let you know I am looking at this. As I already said, it looks like this is an issue for NJ and I will check NY as well. 

[bmatty]

For those who are following the Roth IRA issue in the original post, this issue has been resolved.

[goodebri]

BillM223

Any progress with this? Let me know if I can help.

Brian

[BillM223]

I am working on this. However, I should bring up the possibility that even if the Development Team agrees that there is an issue (not a guarantee), that it may not be addressed until after April 18th. 

Thus you should look into two options:

1. File an extension (4868) and wait for a potential fix . Do a Search on the upper right for form 4868 (lower case) and click on the jump-to link (ignore all the suggested search terms). You will have to pay any tax due by April 18th anyway, but it will give you until October 15, 2023 to file your return.

2. Look at the state returns in Forms mode (if you have the CD/download software) and see if there is anyplace you can override the amounts (I haven't explored this option yet) and then file. Be sure to document what you did and why and keep it in your tax files, in case anyone ever asks.

You obviously have a few weeks to think about this, but I thought that I would give you the heads' up.

@goodebri 

[jlunger18]

I'm getting the same error... so i guess it has not been resolved? 

[bmatty]

This was resolved for me a few weeks ago.