Excess IRA contributions because earned income (incorrectly) shown as zero

[Martin_H]

TT is stating I have excess Traditional IRA contributions because my earned income is zero. However, this is not correct - I have plenty of earned income on my W-2. I have tried re-importing my W-2, and also entering it manually without success. ChatGPT suggested it could be that because I have some other foreign source income and foreign tax credits (I moved from the US to the UK during the year, but the W-2 was earned in the US), it is causing TT to "disallow" the income for IRA purposes i.e. TT thinks I lived overseas all year and therefore have no US source earned income. However it was not able to provide a solution! Any suggestions?

[RachelW33]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number  (including the dash) that was generated in the response.

*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)

[Martin_H]

I discovered the cause. I became eligible for a non-qualified pension during the year, and its present value was included in Box 11, so that FICA could be paid on it up front. Turbotax asked whether I had taken a distribution or made contributions to the pension (i.e. no option to choose deferred compensation). I chose "taken a distribution", and it then deducted the total Box 11 amount from my Box 1 wages, making Box 1 negative. This meant that it was showing the IRA contributions as excess, because they were greater than my (negative) earned income.

Changing the option to "making contributions" to the NQ pension removed the issue, and I can't see that it causes any issues elsewhere (yet), so that workaround seems to be OK.

It looks like Turbotax needs to be adjusted to deal with deferred compensation for NQ plans, where FICA is paid up front, but the earnings (and income tax) are deferred.

Rgds

Martin