TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

[prfssr53]

I had $717 net income from tutoring last year (2019), after mileage expenses of $183. Since this income was not wages, it was self-employment income. I entered this income and expenses into TurboTax and it (the net) shows up correctly in the "Business Income and Expenses (Sch C)" line of the "Business Items" income category on my TurboTax 2019 Income Summary page. According to the IRS, self-employment income is earned income. This tutoring income was my only earned income last year, and so I should be able to contribute all of it to my Roth IRA as a deductible contribution. I entered into TurboTax that I contributed $717 to my Roth IRA. TurboTax came back with a message that I don't have enough earned income, and this $717 will be considered an excess contribution. What do I need to do to fix this?

[VolvoGirl]

If you have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for the ER portion of your self-employment taxes. See IRS publication 590A

https://www.irs.gov/pub/irs-pdf/p590a.pdf 

So check 1040 Schedule 1 line 14. You have to deduct that amount from your Schedule C Net Profit. That will give you the allowed contribution for the 1099Misc income.

[prfssr53]

Clarification: I don't know about "deductible"; all I care about is that this Roth IRA contribution is "allowed", not an excess contribution.

[prfssr53]

I adjusted my Roth contribution down by the amount shown on 1040 Schedule 1 line 14 ($51), from $717 to $666, and I get the same error message back from TurboTax.

[VolvoGirl]

You have to subtract 1/2 of the SE tax from the Net Profit.  So if you have a Net Profit of 717 your SE tax is about $101.  Half is $51.  You have to subtract 51 from the 717 = $666 for the max you can contribute.  You have to actually take the excess out of your ROTH account.  

Look at Schedule 1 line 14.  You have to subtract that from the 717 to get the amount allowed to contribute.

[VolvoGirl]

I was typing the same time that you posted.  Don't know why.  Try reducing it by another dollar.  Must be some rounding.  

[prfssr53]

What you just described is exactly what I did: I told TT I contributed $717 – $51 = $666 to my Roth IRA, and TT (a few pages later) told me that this $666 would be considered an excess contribution.

[prfssr53]

OK. I'll try that.

However, note that the message from TT said that $666 would be an excess contribution. Should not the error message have said that, for example, $1 would be considered an excess contribution?

[VolvoGirl]

The whole amount 666 is excess??  Do you have a lot of other income?  @dmertz

Are you married?  Be sure your schedule C and contribution are listed for the same person.    

[prfssr53]

I'm retired. I have a lot of income, but my only earned income last year was from tutoring. Isn't that all that matters?

[VolvoGirl · Accepted solution]

See publication 590A page 39 for ROTH contributions

https://www.irs.gov/pub/irs-pdf/p590a.pdf 

[macuser_22]

If Schedule C income is your only income then how much is the 1040 Schedule 1 line 3 minus line 14?

[prfssr53]

Thank you very much. My mistake. The last time I tutored, I must have had an AGI that put me under the limit. I've been taking a lot of extra distributions from my Traditional IRA, and converting the after-tax amount to my Roth, so I've been incurring a lot of extra income that I must not have had last time I did any tutoring.

[prfssr53]

My 1040 Schedule 1 line 3 minus line 14 is $717 – $51 = $666. As I said, this was my only earned income, but my income from pension and IRA distributions is considerably over the max Roth IRA contribution limit. I thought only earned income counted. TurboTax correctly warned me. Thanks again.

[SeattleEntrepreneur]

I also can't get TT to recognize my self-employment income and I have ZERO other income..