Can 1099-NEC amount be used for Roth IRA contribution?

[KathrynG3]

Try deleting your Form 1099-NEC completely and re-entering it. It is possible it is not linking to Schedule C. Since it is earned income, you should be allowed to contribute to a Roth IRA.

To delete Form 1099-NEC, follow these steps:

• From the left menu, select Tax Tools.
• Select Tools.
• Scroll to Delete a Form.
• Scroll to Form 1099-NEC and select Delete and Delete Selected Form and Continue.

Next, re-enter Form 1099-NEC in the Self-employed income & expenses section.

• Search for schedule c and click the Jump to link.
  • Add income for this work under Form 1099-NEC and Continue.
  • If there are no other adjustments, scroll down and select Done.
  • Follow through the rest of the interview and select Done with Income.

[Hal_Al]

As KathrynG3 says, the income has to be reported on Schedule C to be considered as earned income  (compensation).  It's your net income after expenses that qualifies you, not the amount on the 1099-NEC.

[Bobcatknox]

Well, after two updates to turbo tax and now second week of MARCH. We are being told that the ROTH CONTRIBUTION exceeds income. We too completed 1099-NEC compensation input that my wife received as a commission but it is no showing up as income. Come-on Intuit and fix this bug.

[nd13]

Hi, I'm having a similar problem here when trying to file. I am a graduate student that is compensated through a 1099-NEC for my stipend. I am NOT self-employed and was told to make sure that this is not listed as a self-employment or on a Schedule C, since that will incur self-employment taxes that do not apply to me. When I indicate there are no deductions, TT does not re-classify this 1099-NEC as business income, which is great.

However, when I enter the amount I've contributed to my Roth IRA, it says I have "excess contribution" because it is not counting the amount listed under the 1099-NEC as income. Any advice here? Can I just not include the Roth IRA on my taxes? I was under the impression that it should not change the taxes owed anyway, however when I delete the Roth IRA entry, it reduces the amount of taxes I owe in the top corner. 

[Opus 17]

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@nd13 wrote:

Hi, I'm having a similar problem here when trying to file. I am a graduate student that is compensated through a 1099-NEC for my stipend. I am NOT self-employed and was told to make sure that this is not listed as a self-employment or on a Schedule C, since that will incur self-employment taxes that do not apply to me. When I indicate there are no deductions, TT does not re-classify this 1099-NEC as business income, which is great.

However, when I enter the amount I've contributed to my Roth IRA, it says I have "excess contribution" because it is not counting the amount listed under the 1099-NEC as income. Any advice here? Can I just not include the Roth IRA on my taxes? I was under the impression that it should not change the taxes owed anyway, however when I delete the Roth IRA entry, it reduces the amount of taxes I owe in the top corner. 

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The grad stipend issue is separate from the general problems created by the way Turbotax changed the workflow around 1099-MISC and 1099-NEC forms.  I would post your question as a new topic, and then we can see if someone has a workaround or if there is a timetable for a fix.

[Opus 17]

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@nd13 wrote:

Hi, I'm having a similar problem here when trying to file. I am a graduate student that is compensated through a 1099-NEC for my stipend. I am NOT self-employed and was told to make sure that this is not listed as a self-employment or on a Schedule C, since that will incur self-employment taxes that do not apply to me. When I indicate there are no deductions, TT does not re-classify this 1099-NEC as business income, which is great.

However, when I enter the amount I've contributed to my Roth IRA, it says I have "excess contribution" because it is not counting the amount listed under the 1099-NEC as income. Any advice here? Can I just not include the Roth IRA on my taxes? I was under the impression that it should not change the taxes owed anyway, however when I delete the Roth IRA entry, it reduces the amount of taxes I owe in the top corner. 

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It appears you need to enter the income as a scholarship in the education section of the Deductions page, and not as 1099 income on the income page. 

quoted from https://ttlc.intuit.com/community/retirement/discussion/graduate-student-roth-ira-contribution/01/18...

To report stipend income in TurboTax, you must visit Deductions and Credits, Education Expenses section. You must answer all the questions, the taxable amount will be computed as the excess of your scholarship over the qualified education expenses.

1. Federal Taxes
2. Deduction & Credits  
3. Scroll down to Education
4. Select Expenses and Scholarships
5. Follow the prompts… It will be somewhat confusing as you are answering the questions as if you claim an education credit… answer the initial questions and select that you did not receive form 1098-T. You will be asked for school’s name and address, just fill out the program information you are in... You will eventually see a screen "Did (your name) receive a scholarship or grant in 2020? Please enter your stipend in other Scholarships/Grants/Fellowships; this will ensure that the stipend is taxable on line 7 form 1040 as wages.

Once done, you may review your form 1040 and to verify that line 7 of the form looks correct.  You may do so prior to paying for the program:

1. From My Account drop down, select Tools (you must be logged into your tax return)
2. Select View Tax Summary
3. Select Preview my 1040 

[Hal_Al]

deleted

[Opus 17]

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@Hal_Al wrote:

@nd13  You can't have your cake and eat it too.

If you want the income to not  be subject to self employment tax (social security and Medicare tax), you have to enter it as taxable scholarship. That means it's not earned income and therefore does not qualify you for an IRA contribution. 

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No, the SECURE act included a provision that stipends for graduate students and postdoctoral fellows that meet certain conditions are treated as "compensation" for purposes of contributing to an IRA, even though they are not "earned income" for any other purpose.

https://www.forbes.com/sites/simonmoore/2019/12/23/if-youre-a-graduate-student-the-secure-act-makes-...

The trick is entering it correctly in Turbotax, which apparently requires going through the Education deduction interview instead of the 1099 income interview. 

[ClintinWC]

Good god yes... this is one hell of a mess in TurboTax.  I've already spent 4 hours trying to figure out why my wife''s 1099-NEC self employment income isn't earned income... much less getting it fixed.

[Opus 17]

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@ClintinWC wrote:

Good god yes... this is one hell of a mess in TurboTax.  I've already spent 4 hours trying to figure out why my wife''s 1099-NEC self employment income isn't earned income... much less getting it fixed.

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This is a long and old discussion with several different problems.  What exactly is your issue?  If your spouse is self-employed, it will work best if you create the job, then enter the 1099 as job income.  In the past, it was possible to enter the 1099 first, which would create the job (schedule C) but that doesn't work as well this year.

[ClintinWC]

Sometime around 10:00pm last night I finally found the problem.  When I was entering the amounts for the 1099-NEC I mistakenly started entering the IRA contribution ($7k) in as information related to a 401k/Keogh plan.  I realized my mistake and went back and removed those values while in the TT step by step mode.  To all appearances they were gone... zeroed out.  But TT failed to remove the IRS form (8862) for this calculation!  It left my original entries on the form and continued to use these erroneous values throughout in calculating my wife's earned income; reducing it by not only the $7k but by even more since it had tried to "maximize" this deduction.

It was only after I removed the 1099-NEC entry by deleting it in step by step AND went into the form view, found the form for the EIC and deleted that that the program finally worked.

All in all I estimated I wasted in excess of 6 hours trying to diagnose and fix this problem.  Although I realize it was initiated by initial mistake of confusing our IRA contribution with a 401k contribution, it is outrageous that one part of TT "fixed" the problem on the surface but left this bomb in place by not deleting the 8862 when it had been zeroed out.

[sblionel]

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@Hal_Al wrote:

 In addition, the amount of the income must be reduce by the deduction for 1/2 the self employment tax.  Effectively only 92.35% of her 1099-NEC income is eligible for an IRA contribution. 

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As best as I can tell, the "92.35%" relates only to the amount of SE income that is taxable (Topic No. 554 Self-Employment Tax | Internal Revenue Service (irs.gov)) For purposes of determining eligible IRA contributions, all of the SE income, minus SE tax, is the number (Publication 590-A (2021), Contributions to Individual Retirement Arrangements (IRAs) | Internal Reve...)  This is what TT for 2021 calculated for me (but didn't tell me it had done so, which led to quite a bit of head-scratching.)