1099-NEC not being counted as Earned Income

[nkapur]

My only source of income was some contract work for which I got a 1099-NEC. Turbotax is not counting it as Earned Income which does not allow me to deduct my Roth IRA contribution. Is there a way around it?

[SweetieJean]

Only your self-employment profit (not income) counts as Earned Income for this purpose.  And the IRS requires that you claim all of your SE expenses.

[mymoneysworth]

What about when there are no SE expenses? My daughter's W-2 income is $470.40 and her 1099-NEC income is $5,226.90. At the section where one enters previous years' ROTH contributions TurboTax says the limit for the 2020 ROTH contribution is $470.40, thereby ignoring the 1099-NEC income. Yet in the info section it says 1099-NEC income counts as earned income. Seems like a glitch to me. What am I misunderstanding?

[VolvoGirl]

It needs to show up as self employment income on Schedule C to count as Earned Income.  So You need to take the 1099NEC out of other income and enter it as self employment. You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version. Or any of the Desktop programs. But you will get the most help in the Home & Business version.

How to enter income from Self Employment
https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

[VolvoGirl]

To Calculate Earned Income on Self Employment........

For self-employment income your earned income is the Net Profit minus 1/2 the SE tax. Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment. You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400). The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare (FICA). So you get social security credit for it when you retire.

If you have no expenses the SE tax is 5,226.90 x .9235 x .153 = 738.54
Then 1/2 of 738.54 = 369.27

5226.90 - 369.27 = 4857.63 Earned Income

[Hal_Al]

You have entered the 1099-NEC in such way that TurboTax is not treating it as self employment.  With the download software that was easy to do until the most recent update.

Go back to the 1099-NEC entry point  and delete the 1099-NEC.  If you have download software or are using the self employment version of TT online, enter the 1099-NEC at Business Income, rather than at the 1099-NEC point.

If you have other online versions, re-enter the 1099-NEC. At the "Does one of these uncommon situations apply" screen, check "none of these apply to me".  At the next screen ("Self-employed 1099-NEC income") check your "business" (the reason you got the 1099-NEC).   That will make it self employment on schedule C, rather than other income on line 8 of Schedule 1.

[mymoneysworth]

Thank you. Treating it as Business Income worked.

[Buckerou]

Thank you for this information. I asked this last year to an accountant and didn't get an answer. Now I see what I need to do. I don't understand it but now I see why. It seemed like the 1099-NEC wasn't being counted as earned income when input into the personal income section. I see now that if input as self-employed/business income the feds get their share for SS/Medicare.  I don't know which offset is better; not being allowed IRA contribution/not paying SS/Medicare or being allowed the contribution and then paying the SS/Medicare bill.

Thanks for the answer.