Excess IRA Contributon tax is computed when sufficient W-2 earnings are present

[gmc727]

As I enter a Roth IRA contribution for 2023 in the amt of $7500, Turbotax computes an addition tax on Line 23 for *excess* contribution @ 6%.  There is sufficient W-2 earnings present to support the contribution, and I don't see any double counting.  E.g. the W-2 import did not included any IRA contribution.

[VolvoGirl]

Do you have more than 1 W2?  Are you married?  Be sure each W2 is  entered under the right person.

[gmc727]

Yes, there are two W-2's.   The husband made the IRA contribution, and he has sufficient W-2 wages to support.  If I View the input W-2 forms, the taxpayer's W-2 (husband's) is not checked with an "X" Instead it is shaded in blue, without an X.

[gmc727]

I deleted the taxpayer's W-2 and re-entered it confirming that it is properly attributed to the taxpayer, not the spouse.  Unfortunately this did not clear the issue. Turbotax still generates a Form 5329 and computes an excess contribution tax @ 6%.

[dmertz]

TurboTax does correctly determine the permissible amount of an IRA contribution when provided with correct information.

The amount shown on a W-2 that will support an IRA contribution is the amount in box 1 minus any amount in box 11.

For a spousal contribution, only the spouse with the lower compensation is eligible to use the other spouse's compensation to support their contribution.  For example, if Spouse A has $5,000 of compensation and Spouse B has  $4,000 of compensation, Spouse A's contribution is limited to $5,000 while Spouse B would be eligible to make a $7,500 contribution (provided Spouse A contributed no more than $1,500 to Spouse A's own IRA).

[gmc727]

This return seems to conform with what you're saying above and, therefore, should not have excess contribution tax applied.   This is a retired couple ->  Spouse A has W-2 wages of $8166 in Box 1 and zero in Box 11.  Spouse B has W-2 wages of $967 in Box 1 and zero in Box 11.   Spouse A made a $7500 Roth IRA contribution, which should be supported by earned wages of $8166. Spouse B made no IRA contribution.

[dmertz · Accepted solution]

Eligibility to make a Roth IRA contribution also depends on modified AGI for the purpose:

https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023

[gmc727]

Thank you. The AGI limits explain my issue.