Sick Pay & IRA

[Black Bart]

Anybody happen to know if you can contribute to an IRA under this kind of compensation only?

[sea-tax]

Anybody happen to know if you can contribute to an IRA under this kind of compensation only?

Is it considered earned income? I mean did they get a W-2 then I would say yes.

[Black Bart]

Earned income?

He earned money in previous years with this company, but got hurt around the last of '06, so he hasn't worked all this year. His employer (not their insurance company) has paid him $400 per week since January 1st and is writing "sick pay" on his checks. They're going to do that until their sympathy is exhausted and it gets to be too much.

I checked IRS' IRA pub and also called the toll-free info line. Both state that "IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2." I guess that word "properly" might be the catch. He says the secretary/bookkeeper makes the W-2s and she's going to put it in box 1 just like everybody else's, but whether or not it actually should be there is anybody's guess. The IRS rep didn't know beans about it other than to quote right out of the same IRS pub I was looking at.

Anyway, they're putting it in box one and probably will check the "third party sick-pay" in box 13 of the W-2 (although I think that's supposed to be for insurance companies). So, he's going to put in $4K and I think it'll probably fly no matter what (I've never seen IRS get picky about the way forms are made out/screwed up/whatever).

Thanks veritas. Hey, about your "Red River" quote; do you remember this one from the same movie?

Walter Brennan to John Wayne, upon seeing a Mexican gunman (literally a "troubleshooter") ride up: "Never liked seeing strangers. Guess it's because no stranger ever good-newsed me."

[sea-tax]

BB I am not Veritas but I think I would say go ahead with the IRA. The income sounds earned to me.

[Black Bart]

Oh...uh...well...sorry about that,

BB I am not Veritas but I think I would say go ahead with the IRA. The income sounds earned to me.

but you know how it is -- all you Northwest guys sound alike.

How'd you like the quote?

[sea-tax]

but you know how it is -- all you Northwest guys sound alike.

How'd you like the quote?

Yeah we all look alike as well with our birkenstock sandals, ponytails, coffee cruisers, and I love Clinton stickers. Gotta love the northwest.

[veritas]

First BB

I must say I like the quote.

Secondly I do not own Birkenstocks and never will. It would cramp my style on the Harley.

Third I agree with Sea-Tax on the sick pay. See IRS Rev Proc 91-18

As a matter of administrative convenience, the Service will treat as a "safe harbor" the amount properly shown in box 10 (Wages, tips, other compensation), less any amount properly shown in box 14 (nonqualified plans), on Form W-2, Wage and Tax Statement for 1990 (box 16 for 1991) (or similar designation in future years). Accordingly, this amount can be used in calculating an individual's compensation for purposes of determining his or her deductible and nondeductible, as is appropriate, contribution to an IRA.