Form 1116 "Gross Income from All Sources Smart Worksheet" and deferred compensation

[Tina777]

Last year, TurboTax reported my nonqualified deferred compensation on 1040, line 1 AND included it in the “Gross Income from All Sources” calculation on Form 1116.  This year, TurboTax is reporting my deferred compensation on Schedule 1, line 8t and is NOT including it in the “Gross Income from All Sources” calculation on Form 1116.  As a result, a significant portion of my foreign tax credit is being carried forward rather than being applied to the current year.

Shouldn’t nonqualified deferred compensation be included in the “Gross Income from All Sources Smart Worksheet” calculation on Form 1116?

[HopeS]

The program does allow the reporting with Form 1099-NEC which you may have received from the payer as well as the 1099-MISC. There may be Federal income tax withheld reported on Form 1099-NEC. 

If you do not have this form, you can enter the information you have from your 1099-MISC in the Form 1099-NEC in TurboTax (and then delete the 1099-MISC to remove the error you have).   

The payer information will all be the same and you can enter the box 14 amount in box 1 of the 1099-NEC.  Leave boxes 5-7 blank on the Form 1099-NEC.

@Tina777 

[Edited 9:59AM|PST] @Tina777 

[Tina777]

Thanks for your reply, HopeS.  My deferred comp was actually reported to me on my W-2, boxes 1 and 11, so that's where I entered it in TurboTax.  Is the fact that TurboTax is not pulling this information from the W-2 form a possible bug then?

[AliciaP1]

No, the IRS changed the reporting structure of nonqualified deferred compensation for 2022.  It is no longer considered gross income but is reported as a net against other adjustments to income on Schedule 1.  If you look at your Form 1040 Schedule 1 you will see your deferred compensation from box 11 on your W-2 reported on line 8t.  This is reported on your Form 1040 on line 10, after total income on line 9.  Form 1040 line 9 is considered "Gross income from all sources".

@Tina777 

[Tina777]

Thank you for your response.  I actually called this issue into TurboTax support and the workaround I was provided was to manually add my deferred comp onto line B of the "Gross Income from All Sources Smart Worksheet" on Form 1116.  After doing so, TurboTax correctly calculated my foreign tax credit.

FYI - TurboTax transferred my deferred compensation from Schedule 1 to line 8 of form 1040 (and as a result, my deferred comp is included on line 9 of form 1040).