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Level 2

Question

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

Forum|Forum|3 years ago
February 7, 2023
4 replies
1 view

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

Employee Tax Expert

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.

From the menu, select Send Tax File to Agent.
You will see a message explaining what the diagnostic copy is.  Click Send and then you will get a Token number.
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.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

bmattyAuthor

Level 2

Thanks, HollyP. My token number is 1065418.

I look forward to getting this resolved. Thanks!

MichaelG81

Level 7

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

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bmattyAuthor

Level 2

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

jlunger18

Level 2

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

goodebri

Level 2

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

Level 15

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

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goodebri

Level 2

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]

hannahmanuela

Level 2

Hi,

I'm still having this issue, that it's telling me my earned income was zero. But when I look on the tax summary it says the total income as expected

Is there something else I need to do?

Thanks!

KrisD15

Level 15

You should be able to use the scholarship to contribute to an IRA.

Fellowship is "Sometimes Considered Earned Income" and Sometimes Not" (there is no FICA tax withheld)

Enter the 1098-T showing the excess scholarship in Box 5

The income will be listed on your 1040 schedule 1

Continue to the Deductions & Credits section

Scroll down and select Traditional and Roth IRA Contributions

Choose the IRA you wish to report, Fellowships can fund either Roth or Traditional

Continue through the interview screens and enter the amount of the Fellowship on the appropriate screen "How Much of the Taxable Scholarship was for Graduate or Post-Doctoral Studies?"

Continue through the interview

Other restrictions may apply such as income limits.

According to the IRS:

“Individual retirement arrangements (IRAs). You can set up and make contributions to an IRA if you receive taxable compensation. A scholarship or fellowship grant is generally taxable compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. However, for tax years beginning after 2019, certain non-tuition fellowship and stipend payments not reported to you on Form W-2 are treated as taxable compensation for IRA purposes. These include amounts paid to you to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in this chapter. Taxable amounts not reported to you on Form W-2 are generally included in gross income as discussed later under Reporting Scholarships and Fellowship Grants. For more information about IRAs, see Pub. 590-A and Pub. 590-B.”