1098 taxable income and IRS deduction

Forum|Forum|3 years ago
February 1, 2023
1 reply
0 views

I read in an IRS publication that taxable scholarship income and now be used as qualifying income to allow for deductible standard IRA contribution - yet the online turbotax program is restricting the allowable amount to strictly her earnings. Specifically, she has about $1500 in earnings but she received roughly $17,000 taxable scholarship funds for room and board, and miscellaneous (over tuition and fees - so the amount of her full ride minus qualified expenses). When she tries to submit $6,000 for her standard (deductible) IRA contribution, it limits her to the $1500 in earnings as what can be deducted. I'm sure this isn't a very common problem (which is why I pored over the IRS pubs) but does anyone have any experience/info about this? Is there an option to contact turbotax without paying for the upgraded 'tax help' service?

TurboTax Deluxe Online

MinhT1

The IRS is clear on this point:

To contribute to a traditional IRA, you, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment.

Please read this IRS document for more information.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

mmom974Author

Thanks for your time. I clarified that the taxable scholarship income that counts as deductible income is seemingly only for graduate students and not undergrad. According to Publication 590-A (2021), Contributions to Individual Retirement Arrangements (IRAs) | Internal Revenue Service (irs.gov)

Taxable non-tuition fellowship and stipend payments. For tax years beginning after 2019, taxable non-tuition fellowship and stipend payments are treated as taxable compensation for the purpose of IRA contributions. These will include any amounts included in your gross income and paid to you to aid you in the pursuit of graduate or postdoctoral study. For more information, see Wages, salaries, etc., later.

Sadly, it seems that undergraduate scholarships don't qualify for the same consideration.