topic 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020? in Deductions & credits

1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

angmi90 — Thu, 10 Dec 2020 16:45:36 GMT

I am a post-doctoral fellow paid not through a W2 but rather a 1099-G where I earn grant income that is reported on box 6 of the 1099-G. I pay estimated quarterly taxes each year to avoid the underpayment penalty to both IRS and to the state. However, when I input this into TurboTax, it always says I have made excess contributions to my IRA as it shows my eligible income is $0, which is incorrect and makes any contribution to my IRA in excess.

According to the new tax law that went into effect for 2020 (https://www.law.cornell.edu/uscode/text/26/219) see (F) (1) Compensation: ...."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."

This means that the software needs to include 1099-G box 6 income earned as a result from a graduate or post-doctoral study as part of an individual's gross income that would count towards an IRA income contribution limit. Am I reading this correctly?

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Bsch4477 — Thu, 10 Dec 2020 20:49:13 GMT

Just reread your reference. Good catch. Hopefully TurboTax will include this change in its program. If not, post again and we will try to help you.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Critter-3 — Thu, 10 Dec 2020 17:27:14 GMT

The program is still being updated for all the new rules and until it is fully functional sometime in late January or sometime in February there is no way to get this to work yet.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Opus 17 — Thu, 10 Dec 2020 19:40:17 GMT

That's an interesting change in the law. Postdoc stipends are not "earned income" because you are not being paid for performing "work" (regardless of what it feels like when the alarm goes off Monday morning), you are being trained and educated. This means you are not subject to self-employment tax (social security and medicare). Normally this also means you don't have "compensation" for purposes of contributing to an IRA, but you are correct the tax code now allows postdoc stipends to be considered "compensation" for purposes of an IRA.

In that case I would suspect that the program has not been fully updated for all new tax law changes. Try again in January. Note that Turbotax can only post changes once the IRS had made the changes to their forms and instructions, and then it usually takes a few more weeks since the IRS also has to specifically approve of the change in the tax program. Sometimes, tax law changes are not approved until February or even March.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Critter-3 — Thu, 10 Dec 2020 19:46:20 GMT

I wonder if the new 1099-G will have a different code or you will get a 1099-misc instead ... wait for the form you will get in January ... only then will we know the path that is needed.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Opus 17 — Thu, 10 Dec 2020 19:52:53 GMT

@Critter-3 wrote:

I wonder if the new 1099-G will have a different code or you will get a 1099-misc instead ... wait for the form you will get in January ... only then will we know the path that is needed.

Box 6 is already "taxable grants." The question I suppose is whether the question "Is this the kind of taxable grant that qualifies as compensation under the new §219?" is going to be for the government payor to determine (which would need a new box) or for the taxpayer to certify for themselves.). The 2021 1099-G is already released so my guess is the latter.

My guess is, when making an IRA contribution without earned income, Turbotax should look for a 1099-G box 6 and ask the taxpayer "was this payment for graduate student or postdoctoral training, or some other kind of grant?" Alternatively, this may require an override if it is one of those things where the IRS says "attach a written statement". I think we just have to wait to see how it is implemented.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

macuser_22 — Thu, 10 Dec 2020 20:00:28 GMT

Typically TurboTax uses the IRS Pub that interrupt the tax laws and the IRS forms and instructions. directions for those forms. This is explained in 2020 IRS Pub 590A that has not published yet. The draft 590A says:

Under "What is Compensation"

Certain taxable non-tuition fellowship and stipends.
For tax years beginning after December 31, 2019, certain
taxable non-tuition fellowship and stipend payments are
treated as compensation for the purpose of IRA contributions.
Compensation will include any amount included in
your gross income and paid to aid in your pursuit of graduate
or postdoctoral study.

So I am sure that when complete, TurboTax will follow those rules.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Opus 17 — Thu, 10 Dec 2020 20:04:25 GMT

@macuser_22 wrote:

Typically TurboTax uses the IRS Pub that interrupt the tax laws and the IRS forms and instructions. directions for those forms. This is explained in 2020 IRS Pub 590A that has not published yet. The draft 590A says:

Under "What is Compensation"

Certain taxable non-tuition fellowship and stipends.
For tax years beginning after December 31, 2019, certain
taxable non-tuition fellowship and stipend payments are
treated as compensation for the purpose of IRA contributions.
Compensation will include any amount included in
your gross income and paid to aid in your pursuit of graduate
or postdoctoral study.

So I am sure that when complete, TurboTax will follow those rules.

Yes, but the problem is that not all box 6 "taxable grant" payments will qualify as graduate student or postdoctoral stipends, so the question will have to be asked at some point.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

angmi90 — Thu, 04 Feb 2021 21:44:51 GMT

So I have purchased the TurboTax 2020 software to do my taxes and as of Feb 4, 2021, this has not been fixed. How long should I wait to allow them to push an update to the software? Or how can I contact someone at Intuit to make them aware of this?

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Opus 17 — Thu, 04 Feb 2021 21:58:18 GMT

Publication 590A is still in draft for 2020. I can ask a moderator about this, if there is sufficient demand, they may create a FAQ.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income l...

SamS1 — Thu, 04 Feb 2021 21:59:17 GMT

Try forcing it through the 1098E American Opportunity Credit screens. You will need to enter zeros for expenses and tuition except for the information about the Grants and Fellowships. Enter the amount from your 1099G there. This should push the amount to your wages line of the 1040 and hopefully get you around the IRA contribution limit errors.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income l...

Opus 17 — Fri, 05 Feb 2021 15:58:04 GMT

@SamS1 wrote:

Try forcing it through the 1098E American Opportunity Credit screens. You will need to enter zeros for expenses and tuition except for the information about the Grants and Fellowships. Enter the amount from your 1099G there. This should push the amount to your wages line of the 1040 and hopefully get you around the IRA contribution limit errors.

If Turbotax does not yet recognize that certain fellowship income is "Earned" for purposes of IRA contributions, how will this accomplish that? Entering a fellowship in the 1098-T interview will simply add it to line 1 with the notation "SCH", that's not normally earned income, and would not be earned income if it was, for example, an undergraduate scholarship awarding tuition and room and board. The law only changes the tax treatment of Graduate Student and Postdoctoral Fellow stipends that meet certain requirements.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

Opus 17 — Fri, 05 Feb 2021 15:58:48 GMT

@angmi90 wrote:

So I have purchased the TurboTax 2020 software to do my taxes and as of Feb 4, 2021, this has not been fixed. How long should I wait to allow them to push an update to the software? Or how can I contact someone at Intuit to make them aware of this?

The moderators have confirmed that Turbotax is aware of the issue but is awaiting final guidance and instructions from the IRS. There is no timetable on when this will be updated.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

nmn38 — Thu, 04 Mar 2021 13:27:39 GMT

Do you have a new estimate on when this change will be updated in the TurboTax system? Or when the IRS will approve the final 590-a document? I have a similar issue as the person who originally posted this question and am getting nervous that it is already March and the change isn't accounted for.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income l...

CarissaM — Sun, 07 Mar 2021 22:47:55 GMT

@nmn38 Can you provide a little more clarity as to what kind of assistance you are needing?

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

macuser_22 — Sun, 07 Mar 2021 22:58:03 GMT

@nmn38 wrote:

Do you have a new estimate on when this change will be updated in the TurboTax system? Or when the IRS will approve the final 590-a document? I have a similar issue as the person who originally posted this question and am getting nervous that it is already March and the change isn't accounted for.

The IRS only published the 2020 590-A on 3/5 (2 days ago). It will probably be a few weeks before software changes will be made.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

nmn38 — Mon, 08 Mar 2021 14:38:53 GMT

Thank you, macuser_22!

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income l...

nmn38 — Mon, 08 Mar 2021 14:45:17 GMT

@CarissaM Hello. I am a postdoctoral fellow and received my taxable fellowship grant on a 1099-G. I entered my stipend/wage amount from the 1099-G either under certain government payments or as a scholarship/grant category (tried it separately both ways). Then when I get to the section on IRA deductions it says that the amount I contributed to my traditional IRA in 2020 (<$6000) was an excess contribution because it was higher than the allowed amount based on my wages. However, this should not be the case because under the SECURE Act taxable non-tuition fellowships are eligible to be treated as compensation for the purpose of IRA contribution. So I am wondering how to enter my fellowship stipend in a way that it will not count my IRA contribution as excess? It sounds like IRS publication 590-a was just approved last week, so maybe TurboTax will change its system?

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income limits in 2020?

angmi90 — Sat, 03 Apr 2021 16:02:00 GMT

This issue does not appear to be resolved either in the TurboTax online product or in the software version. I realize this is a last-minute change by the IRS to publish this change but to me, this is an unacceptable delay by TurboTax, especially since they do charge quite a bit for the software.

If the IRS/states had not extended the deadlines by a month this year, I would be in a real bind. Is there anyway to get this issue resolved? I don't understand the delay.

Re: 1099-G (Federal grants) income from a postdoctoral fellowship contribute towards IRA income l...

ReneeM7122 — Mon, 05 Apr 2021 17:24:34 GMT

It depends. Here is an IRS link that discusses Scholarships, Fellowship Grants, and Other Grants. The IRS has a tool that will help you determine if the fellowship should be included as income or not.

If it is deemed taxable income, then according to the SECURE Act of 2019, non-tuition fellowship and stipend income when included in taxable income now counts as compensation in order to make an IRA (both traditional and Roth) contribution.

@angmi90