Vacation pay

[bob667]

2 part question:  I  retired 2022 December  

therefore did not work 2023.   I received money for accumulated vacation backpay 

in early 2023 and  accompanying W2 form.    Do I enter as normal income or some other option available that might be lower tax rate?  And although I did not work my MAGI is over $135k for some reason therefore unable to take advantage of contributing IRA as tax deduction.  Why my magi so high when I did not work?

[Bsch4477]

Enter the W-2 as you would normally. We can’t see your return but you must have income to account for your MAGI. 

[DavidD66]

You report your W-2 for the vacation back pay the same way you would report a W-2 received while you were still working.  The vacation pay is considered earned income just like your earnings while you were working.  There is no lower tax rate option.  If the amount in box 1 of your W-2 plus investment income and retirement income (taxable social security, pensions, etc.) is over $135,000 then your MAGI would be that high.  Even though you did not work, you still have earned income from the vacation pay.  

[bob667]

Vacation pay I collected in 2023 about $14k.  No dollar from work as I was retired entire 2023. Yet my My magi is well over $150k which is amount I never earned that high in my life.   Where do I get the calculation and the breakdown in TT?   

[Vanessa A]

Sounds like there may be a typo.  Go back and double check your decimal points any forms you entered, especially the W-2 with the $14k.  Be sure you didn't enter that as $140K instead of $14k.  

If you are using TurboTax desktop you can also go to forms mode, then click on your 1040 form, then right click and select data source.  This will tell you where the numbers are coming from.

If you are using the online version, you can see your 1040 form, but you can not data source the information. 

On the menu bar on the left that shows. 

1. Select Tax Tools 
2. On the drop-down select Tools 
3. On the pop-up menu 
4. Select View Tax Summary 
5. On the left sidebar, select Preview my 1040 

[bob667]

It’s taking both my wife and myself combined income as the magi.  Should it not be just for my wife since she wants to contribute?  

[DawnC]

Not if you are filing a joint tax return.  Your traditional IRA contributions may be tax-deductible.   The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.

• IRA deduction limits

[bob667]

Could it be turbo thinks she is still employed since she got w2 vacation back pay in Jan 2023?   It thinks she is still contributing to her work retirement?   We both don’t contribute to work retirement plan.  She worked zero hours 2023.  Even if magi is both her and me we are still under $218k which should allow her to contribute?  

[DianeW777]

Yes, the earnings on the W-2 do allow a contribution for her, it's just the deduction that could be limited. It is considered earnings in 2023 based solely on the W-2. Check out the IRS information page below.  TurboTax will walk you through any allowable deduction.

• IRA Contribution Deduction Limits (if in a retirement plan at work as indicated by Box 13 of your W-2)

@bob667 

[bob667]

I think turbo miscalcuting as it specifically says my wife magi is over the limit.   If both her and me combined then yes we over the limit.  Her magi is double what she usually makes.  

[bob667]

And she is retired.  Worked 0 hours in 2023.  Only got $10k for vacation back pay in Jan 1023.  

[MarilynG1]

Since we can't see your return or W-2's in this forum, I would suggest that you Delete and Re-Enter your W-2's very carefully.

A W-2 is reporting income, like wages, even if you're actually retired.  It all counts the same. 

Here's How to Manually Enter a W-2.