Wages and Fellowship

[tobias2]

Hi,

I am a postdoc in the US and have a question regarding my 2021 federal tax return. I received wages from 01/2021 to 03/2021 from my university as my source of income (about USD 16k). Then, from 04/2021 onward I switched to a German postdoc fellowship paid directly to me. I did not receive any other wages, payments, health insurance, or any other payments from my university after 04/2021. I am German citizen, living in the US since 11/2019, therefore I am resident for tax purpose (afaik). My visa status is J1 (research scholar) and I am married to a German citizen, who is also living with me in the US.

My question:

For the fellowship, I want to claim Article 20(3) of the German-US tax treaty, which means the withholding rate is 0% on the fellowship income. But what about the wages I earned before the fellowship (01/2021 - 03/2021)? I don't want to claim those under the tax treaty. Is it possible to use the treaty only for parts of the income (i.e. the fellowship, not the wages)? I am asking this, because I received a 1042-S from my university that lists the USD 16k from my wages under field 2 (Gross Income) and has exemption code 04 in field 3a ("Exempt under tax treaty"). I also received a W2, with only USD 52 in field 1. So, I assume they applied the treaty to the wages as well. This confuses me since I don't want to claim the wages under tax treaty. Any help or clarifications from the experts around here are greatly appreciated. 🙂 

Regards

[LoganathanB]

You can claim treaty benefits if you are filing as a resident and pay tax on your W2.

To claim the tax treaty on a resident return:

• File as a resident alien for tax purposes using Form 1040.
• Complete all applicable income lines and include any amounts that are tax treaty exempt. including 1042-s
• On Schedule 1 line 8 z (Other Income), enter in a negative number for the total amount of the tax treaty exemption being claimed.
• In effect, the amount of Line 10 of Schedule 1 will reflect your other income minus the exempted amount from the tax treaty.
• In the box on Line 8z, write "U.S. {country} tax treaty, Article {article number}"
• The income from line 10 of Schedule 1 will be carried over to line 8 of 1040(negative number) as other income from schedule 1
• Attach Page 5 of the Form 1040NR to the back of the Form 1040. On Page 5, write your name, SSN, and "Resident Alien with Tax Treaty Exemption" written at the top and only complete Question L.
• If you received Form 1042-S, attach Copy to Form 1040 and also attach a copy of W2

Mail your tax return to IRS office under whose jurisdiction the state you live in.

Click on the link for more information

Tax treaty Tax return

[tobias2]

Thanks @LoganathanB .

• Attach Page 5 of the Form 1040NR to the back of the Form 1040. On Page 5, write your name, SSN, and "Resident Alien with Tax Treaty Exemption" written at the top and only complete Question L.

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Form 1040NR (https://www.irs.gov/pub/irs-pdf/f1040nr.pdf) seems to have only 2 pages, not 5. Could you clarify please or provide a link to the correct document?

I am actually looking into doing this with TurboTax now. Where should I report the income from my 1042-S, maybe under "Miscellaneous Income/Other Reportable Income"?

Thanks!

[LoganathanB]

Yes, You can enter it in the Miscellaneous income/other reportable income.

The link for page 5 of 1040 NR is given below. It is available in 1040 NR form 2019 which you can use for 2021.

Page 5 1040 NR

[tobias2]

@LoganathanB 

I used TurboTax and followed your instructions and entered my income as follows. 

- W2 income goes into W2 income

- 1042-S income goes under "Miscellaneous Income"/"Other income not already reported on a Form W-2 or Form 1099"

- Fellowship income (under tax treaty) goes into "Miscellaneous Income"/"Other reportable income"

If I do the above steps, the amounts show up exactly on my 1040 as you described initially.

Adding both 1042-S and Fellowship under "Miscellaneous Income"/"Other reportable income" did not result in 1042-S being added to line 1 on 1040.

I would be glad if you could comment on whether that makes sense at all.

[DaveF1006]

No, that income would not appear in line 1 of the 1040. It would appear in Line 8 as other income. Verify that it does show up in line 8 and let us know.

@tobias2

[tobias2]

Thanks @DaveF1006 . Could you clarify what exactly must show up in Line 8?

I revised everything again, and did the followgin:

- W2 income goes into W2 income

- 1042-S income goes under "Miscellaneous Income"/"Other income not already reported on a Form W-2 or Form 1099"

- Fellowship income (under tax treaty) goes under "Miscellaneous Income"/"Other income not already reported on a Form W-2 or Form 1099"

- Fellowship income (under tax treaty) goes into "Miscellaneous Income"/"Other reportable income" as a negative amount

On my 1040, line 1 includes all income (W2, 1042-S and Fellowship), line 8 has only the fellowship as a negative amount. The fellowship is not reported on any W2/1042-S as it is paid direct to me.

Does the above make sense?

Thanks!

[AmyC]

Great job! You have successfully entered the information where it belongs. A fellowship/ scholarship should be on line 1 while the adjustment is on line 8. 

Related : Topic No. 421 Scholarships, Fellowship Grants, and Other .Grants / IRS.