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Son (dependent) earned $800 as a referee. If he has $200 expense (uniform/travel) can he contribute $800 to Roth IRA or is he limited to $600?

Forum|Forum|3 years ago
December 7, 2022
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Best answer by dmertz

If he receives a W-2, the amount he can contribute to a Roth IRA is the amount shown in box 1 of the W-2.

If he is an independent contractor and not an employee who receives a W-2, he is self-employed and must file Schedules C and SE. On Schedule C he'll deduct his business expenses. If Schedule C shows $600 profit, his maximum Roth IRA contribution will be $600 minus one-half of his self-employment tax. That would be a maximum contribution of $557.

N

NCPERSON1

@tswengros - first question - was he a W-2 employee or 1099 self-employed. if W-2, that $200 can't be deducted.

Also, be aware there will be 15.3% self-employment tax if he was a 1099 self employed individual - that is really the social security and medicare taxes that w-2 employees and their employers pay. it is NOT "income tax".

But otherwise, he can contribute up to what he earned.

D

dmertzAnswer

Employee

If he receives a W-2, the amount he can contribute to a Roth IRA is the amount shown in box 1 of the W-2.

If he is an independent contractor and not an employee who receives a W-2, he is self-employed and must file Schedules C and SE. On Schedule C he'll deduct his business expenses. If Schedule C shows $600 profit, his maximum Roth IRA contribution will be $600 minus one-half of his self-employment tax. That would be a maximum contribution of $557.

O

Opus 17

Employee

@dmertz wrote:

If he receives a W-2, the amount he can contribute to a Roth IRA is the amount shown in box 1 of the W-2.

If he is an independent contractor and not an employee who receives a W-2, he is self-employed and must file Schedules C and SE. On Schedule C he'll deduct his business expenses. If Schedule C shows $600 profit, his maximum Roth IRA contribution will be $600 minus one-half of his self-employment tax. That would be a maximum contribution of $557.

Because the Roth contribution limit for a self-employed person isn't known finally until completing the person's tax return, you may want to wait until after you prepare the return to make the contribution. He can contribute to a Roth for the 2022 tax year until April 15, 2023. He just has to make sure to let the plan custodian know that it is a contribution for the prior year.