Earned or Net Income for Roth IRA

[greytail]

I’m self-employed and receive 1099-NEC from a company.

Since my income is not much this year, it’s confusing which to consider for Roth IRA. I already filed my tax return and which line should I look for when deciding how much I can contribute to my Roth IRA?

From 1040 (Federal Return Summary)

1. Total Income vs Adjusted Gross Income
2. Should I subtract Self-employment Tax from either Total Income or AGI?

From Schedule C

1. Gross Income (line 7)
2. Net profit (line31)

Thank you.

[ThomasM125]

You can't contribute more to your IRA than your earned income, which would be your self-employment net income less your self-employment tax deduction, which is 1/2 of your self-employment tax. That is assuming your only earned income is from your self-employment activity. 

[VolvoGirl]

If you only have self-employment income your earned income is the Net Profit on Schedule C line 31 minus 1/2 the SE tax (the amount on Schedule 1 line 15).

[greytail]

Thank you. So, I don't have to consider any gain/loss from stock, dividend, bank interest, and rental income.

It's really helpful for getting clarification.

[Mike9241]

your limit is compensation/ earned income

below is a detailed description:

however, if your only income was from schedule C  (line 31). it must be reduced by your 1/2 self-employment tax to arrive at the max for a ROTH.  

there are phaseouts depending on your filing status and modified adjusted gross income (MAGI)
$0 if MFS and MAGI  $10,000 or more, partial $0-$9,999

$0 if Single, HOH and MAGI $140,000 or more, partial $125,000- $139,999. full under $125,000

$0 if MFJ or Qulifying Widower and MAGI over $208,000 or more, partial $198,000-$207,999, full under $198,000 

 Compensation includes all of the items discussed next (even if you have more than one type).
Wages, salaries, etc. Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). A scholarship or fellowship is generally taxable compensation only if it is in box 1 of your Form W-2. 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 amounts include taxable non-tuition fellowship and stipend payments made to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in chapter 1 of Pub. 970, Tax Benefits for Education.
Commissions. An amount you receive that is a percentage of profits or sales price is compensation.
Self-employment income (schedule C line 31) . If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:
• The deduction for contributions made on your behalf to other retirement plans, and
• The deduction allowed for the deductible part of your self-employment taxes.
Alimony and separate maintenance. For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance but only with respect to divorce or separation instruments executed on or before December 31, 2018, that have not been modified to exclude such amounts.
Nontaxable combat pay. If you were a member of the
U.S. Armed Forces, compensation includes any nontaxable combat pay you received. This amount should be reported in box 12 of your 2021 Form W-2 with code Q.
Graduate or postdoctoral study. A scholarship or fellowship is generally taxable compensation only if it is 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 amounts include taxable non-tuition fellowship and stipend payments made to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in chapter 1 of Pub. 970, Tax Benefits for Education.