Timing of Income Earned in 2021 & Paid in 2022 – Which year does it count for IRA-purposes?
I have an IRA question about *timing* of earned income. I am semi-retired and have very little earned income so it is important that I am careful that my IRA contributions do not exceed my earnings for the year.
I worked a shift yesterday, December 7, 2021 for which I will not actually receive a paycheck until January 2022. Is that considered 2021 income or 2022 income? In other words, is IRS-earned income on the cash basis or accrual basis?
Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2021-12-08 16:11
Cash basis, which is what the W-2 will reflect. Box 1 of the W-2 shows your earned income for IRA contribution and income tax purposes. If you are not paid until 2022 for this work, your earned income will be in 2022. Of course, you could wait until the first week of Feb to see if you get a W-2 or not, and if you do you can still make a 2021 contribution up to 4/15. But I don’t expect that you will get a 2021 W-2 unless you have earlier earnings from this employer.
Permalink Submitted by Goof Ball on Wed, 2021-12-08 16:20
Thank you very much for the detailed reply! This is the first time I have worked for this employer – I was a pollworker for a special election. I will plan to match this earned income with a 2022 IRA contribution. Thanks again for the valuable help!