Spousal IRA Contribution

[Briancalif1]

I retired in 2020, but received compensation for unused vacation leave in 2021 and 2022.  The compensation paid to me in year 2022 was $3,464.  I have been receiving a pension since 2021 and am no longer considered to be covered by a retirement plan at work, as i am retired.

The 3,464 in compensation for the unused vacation received in 2022 is being reported as wages.  I received a W-2 for this amount from my employer.

My other income received in 2022 was for non-wages income:  pension, interest, dividends and one unusual item.  I received a $11,349 payment from my former employer as a California late payment of wages penalty.  I read an online IRS letter that indicated that this payment was not wages, but was still reportable as taxable income.  It was supposed to have been reported by my former employer on a 1099MISC, but I never received that form .  I am reporting this amount as income, nonetheless.

The TurboTax program is telling me that I am entitled to make a $14,000 contribution.  $7,000 for myself and $7,000 for my non-working spouse.  I thought I was limited to the $3,464 I received as wages for my unused vacation leave.  The only thing that I can surmise is that Turbo Tax is including the $11,349 late wages penalty as earned income.  IF you take the reimbursement for unused vacation and add the penalty for the late payment of wages, that totals $14,813, getting me over the $14,000 contribution limit.  Perhaps this being a write-in amount has caused TurboTax to not recognize the late payment of wages penalty as non-wages?

i would love to make the $14,000 contribution, but don’t want to take it and then have the IRS penalize me later.

Does anyone have any knowledge of the correct contribution amount?  Thank you.

[JulieS]

Yes, you are correct that your IRA contributions should be limited to $3,464, which is the total wage amount for the year. 

You are also correct in assuming that TurboTax must be counting the $11,349 late wages penalty as earned income.  You said you didn't get your 1099-MISC, but you entered it anyway, so the way it was entered must have included it in your earned income. 

The simplest solution would be to leave your return the way it is and just voluntarily limit your IRA contribution. 

The alternative is to change the way your 1099-MISC was entered to make sure it is not counted as earned income. 

The first step would be to delete the entry that you made for the 1099-MISC that you did not get. If you need help doing that, please provide some details of where you entered it. 

Then enter the amount here:

1. Open your return and select Federal on the left side menu.
2. Select Income & Expenses.
3. Scroll down the list and find the section called, Less Common Income, expand the section. 
4. Scroll all the way down and select Miscellaneous Income, 1099-A, 1099-C.
5. Select Other reportable income at the very bottom.
6. Answer Yes and click Continue.
7. Enter a description and amount on this page, click Continue.
    

[Briancalif1]

You are correct.  I inadvertently placed it on the other income schedule as earned income.  Thank you so much for your assistance.