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Form 1042-S - Box 1, Code 16 Scholarship or Fellowship Income
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Form 1042-S is used to report amounts paid to foreign persons (including persons presumed to be foreign) that are subject to tax withholding, even if no amount is deducted and withheld from the payment because of a treaty or exception to taxation, or if any amount withheld was repaid to the payee. It is also used to report amounts withheld under Chapter 3 of the Internal Revenue Code.

If you received a Form 1042-S with Code 15 listed in Box 1 for scholarship or fellowship grants, you will want to report this amount in the Education section of the Federal Q&A. To enter your scholarship or fellowship income in the program:

  1. From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
  2. Click Education to expand the category, then click Student Worksheet (tuition, scholarships)
  3. Click Add to create a new copy of the worksheet or Review to review a worksheet already created
  4. Continue through the Education section of the Q&A until you reach the screen titled Student Information - Education Assistance. If you entered scholarship or grant amounts on the Form 1098-T, you will see those amounts here. If you need to enter any additional education assistance amounts, enter those now, then click Continue.
  5. If you entered an amount for scholarships, grants, or fellowships you will now see a screen titled Student Information - Scholarship Income. Enter any amount that was received for teaching, research, or other services, then click Continue.
  6. On the following screen, you will want to enter any remaining amount that was used for UNQUALIFIED education expenses, then click Continue.

IMPORTANT! If any of the scholarship or fellowship income is exempt by tax treaty and you are filing Form 1040NR, do not enter the amount here. Instead, the exempt amount will be entered on Schedule OI (please see "If you are filing Form 1040NR" below). If any of the scholarship or fellowship income is exempt by tax treaty and you are filing Form 1040, you will want to report the full taxable amount and then reduce your income by the exempt amount in a separate entry (please see "If you are filing Form 1040" below).

Any amount not used for qualifying education expenses is reported as taxable income on your tax return. Please review IRS Publication 970 to determine which educational expenses are qualified or for additional information.

The entry of any exempt income and/or taxes withheld will depend on whether you are filing Form 1040 or Form 1040NR. Please refer to the applicable set of navigation instructions below.

If you are filing Form 1040:

Exempt Income

If you claim treaty benefits that override or modify any provision of the Internal Revenue Code, and by claiming these benefits your tax is, or might be, reduced, you must attach a fully completed Form 8833 to your tax return.  Form 8833 is a fillable form which can be accessed and completed in the TaxACT program as follows:

    TaxACT Online

  1. From within your TaxACT Online return, click on Jump To Forms & Topics
  2. Expand the Federal Forms folder, and then expand the Forms and Schedules folder
  3. Scroll down and select Form 8833 - Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
  4. Click Add to create a new copy of the fillable form where the information can be entered or click Review to review a form already created

    TaxACT Desktop

  1. From within your TaxACT Desktop return, click on the Forms icon in the toolbar
  2. Expand the Federal folder, and then expand the Forms and Schedules folder
  3. Scroll down and double click Form 8833 - Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
  4. Enter the information directly on the form

Once the fillable form is completed, it will then become a part of the return and will be electronically filed and/or printed with the return.

You will also need to reduce your income by the exempt amount. This is done by entering a negative amount on Form 1040, Line 21. 

  1. From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
  2. Click Other Income to expand the category and then click Prizes, awards and other miscellaneous income
  3. On the screen titled Miscellaneous - Amounts Received, enter a description (i.e. See Form 8833) and a negative amount in the blank field to the right for the appropriate individual (i.e. taxpayer or spouse).  This will appear on Line 21 and reduce the amount calculated for Line 22 of Federal Form 1040.

When you print your return, the text See Attached will print to the left of Line 21 on the Federal Form 1040. An attached sheet will print with the return titled Other Income - Supporting Details for Form 1040, Line 21 which will print both the description and amount that was entered for Line 21.

Withholding

When filing a Form 1040, there is no direct entry for reporting taxes withheld on Form 1042-S. Therefore, you will enter federal or state withholding amounts through the Form 1099-MISC, Box 3 section of the program. This will transfer the withholding to the appropriate lines of the returns.

Note: Only the withholding entries are completed for the form, and no income amount should be entered for Box 3. The actual Form 1099-MISC is not electronically filed with the return; only the information it contains.

  1. From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
  2. Click Form 1099-MISC to expand the category and then click 3 - Other Income
  3. Select Form 1040 and click Continue
  4. On the screen titled Form 1099-MISC - Miscellaneous Income, enter the federal withheld amount in the field 4 - Federal income tax withheld
  5. Continue to the third screen titled Form 1099-MISC - Miscellaneous Income, and enter the information for the state tax withheld (the amount, the state name, and the state ID number)

If you are filing Form 1040NR:

Exempt Income

To enter the information for your income exempt by tax treaty on Schedule OI:

    TaxACT Online

  1. Login to your TaxACT Online program
  2. Click Federal Q&A and then click Income Under Tax Treaty (Schedule OI)
  3. Click Add to create a new copy of the fillable form where the information can be entered or click Review to review a form already created
  4. Enter the information directly on the form

    TaxACT Desktop

  1. Start your TaxACT Desktop program and click on the Forms icon in the toolbar OR click Return from the drop-down menu bar, place the cursor over Review and then click Forms
  2. Expand the Federal view and then expand the Forms and Schedules view
  3. Scroll down and double click on Schedule OI - Other Information
  4. Enter the information directly on the form

Withholding

To enter any withholding on scholarship or fellowship income in the program:

  1. From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
  2. Click Basic Information to expand the category, then click Other Income Tax Withholding (Note: You will only see this topic if you are filing Form 1040NR).
  3. Click Add to create a new copy of the form or Review to review a form already created
  4. Enter the withholding information directly on the form

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