You need to enter any taxable scholarship (before apply the treaty provisions) under the Education Expenses section. This will carry the scholarship to line 7 of your return. Because the income is on a 1042-S, it must "hit" the appropriate line of the return first.
To enter your treaty exemption (negative number):
- Click on the “Federal Taxes” tab ("Personal" tab in Self-Employed)
- Next click on “Wages and Income”
- Scroll down the very bottom section “Less Common Income”
- Choose Miscellaneous Income
- Choose "Other Reportable Income" and enter this information here under other taxable income
- You should use a description related to the tax treaty article exempting the income (ie: China-US tax treaty, exemption under article 20) and the exempt amount as a negative number.
How to report income on your tax return. In most cases, you also will not need to report the income on your Form 1040 because the income will be exempt from U.S. tax under the treaty. However, if the income has been reported as taxable income on a Form W-2, Form 1042-S, Form 1099, or other information return, you should report it on the appropriate line of Form 1040 (for example, line 7 in the case of wages, salaries, scholarships, or fellowships). Enter the amount for which treaty benefits are claimed in parentheses on Form 1040, line 21. Next to the amount write “Exempt income,” the name of the treaty country, and the treaty article that provides the exemption. On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22.
You do not need to complete Form 8833 for the scholarship reported on 1042-S.
