1042 S

[Al Emran]

Hi, I got 1042 S and W2 from my company. I joined the company in January 2023, but the treaty for exemption (1042 S) only applied to September 2023 and after that I became an LPR. Now, the 1042 S form I received has only information about the September, though the exemption should be applied before that-- the amount in box 1 "Gross Income" of 1042 S should be much higher and the net taxable income should be lower in W2 form. I asked to my company about that and they told me I might not have signed the form before September, but I may be still claim for full treaty when I submit the tax return. Given this situation, how I can claim the full treaty and submit the tax return using Turbo? Thank you!

[ThomasM125 · Accepted solution]

You need to report the treaty income on your tax return and then enter an adjustment to remove it. That way you can explain why the income isn't taxable.

First, enter any foreign income you haven't reported elsewhere on your return in the Foreign Earned Income and Exclusion section that you will find under Less Common Income in the Wages and Income section of TurboTax. On the screen that asks What Form(s) Was Foreign Income Reported on? answer A Statement from my foreign employer. You will be asked if you want to try to exclude the income, to which you should answer "no". You will be asked if you want to delete form 2555, to which you will answer "yes".

The income will appear on your form 1040, line 1(h) as other earned income. 

You can make an adjusting entry to remove the treaty income in TurboTax as follows:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description of the treaty and the adjustment as a negative number

You must complete Form 8833 Treaty-Based return position disclosure and include with your return. That form is not available in TurboTax, so you will need to complete that separately and attach it to your tax return that you would mail in. Here is a link to the form:  Treaty income adjustment

[Al Emran]

@ThomasM125  When I joined the company in January 2023, I was on F-1 OPT status in the USA, and then in September, I got a green card. I did not receive a foreign income nor my employer is a foreign company then why would I need  A Statement from my foreign employer? And, I am talking about 1042 S, which is under Article 21(2) tax treaty. You mentioned form 1040, line 1(h), I don't have that. 

[ThomasM125]

I assumed you were trying to exclude income based on a tax treaty with a foreign country. If so, you first need to report all of your income, including the income that you are trying to exclude, then you enter a negative adjustment to remove the income exempt by treaty.

You mention income reported on a W-2 form and on a form 1042. You also mention a treaty. You also said that income is not allocated property between the W-2 and form 1042. Are you simply trying to change the reporting of income between the W-2 and Form 1042? If so, and if the W-2 income should be lower than reported, it would lower your social security and Medicare tax if that is listed on the W-2 in boxes 4 and 6. If that is the issue, there is no way to recover excess social security tax on your personal tax return form 1040 in this instance, you would have to get your employer to amend the W-2 form for that. If you are simply transferring the reporting of income between your W-2 and form 1042 entry, then it would not likely affect your income tax, as the total income would be the same either way.

[Al Emran]

Hi @ThomasM125, the 1042 S is based on the treaty-- so I meant both as same. However, the gross income listed in 1042 S is lower than the allowable treaty amount. So, I wonder if I can report the amount in 1042 S as income and then enter a negative adjustment with the allowable treaty amount.  These two numbers would be different. Will that be okay? 

[ThomasM125]

You can apply the treaty exemption to the income to which it would apply, even if some of that income was reported incorrectly on the W-2 form. You just need to have documentation supporting you assumptions in case you need to explain what you did to the IRS.

[Al Emran]

@ThomasM125, so in that case, I can not e-file using TurboTax since it does not support Form 8833, right? Is it possible I can complete the form in TurboTax and not e-submit, but rather print a copy of the 1040 generated from Turbo and submit it along with 1042 S and Form 8833? Or, any other means? 

[DaveF1006]

Yes. When you finish the return and ready to file, you have the option to print and mail your return. This is the only option you may use since you are including a 1042S and 8833 in the return. 

In the return, you will attach the 8833 and the 1042S along with your return. In addition, there will be complete filing and mailing instructions that will print with your return along with an address on where to mail. 

@Al Emran

[Al Emran]

@DaveF1006 Thank you. Since the 1042 S treaty does not apply to state tax, then how can I complete the state return? I mean if I use a negative adjustment, then the state tax amount also changes, though the state tax amount should not be influenced by the treaty amount I put as a negative amount. 

[DaveF1006]

To clarify, what state?

@Al Emran 

[Al Emran]

California

[DaveF1006]

Yes, go to the screen that says Here's the income that California Handles Differently.  Scroll to the bottom to the Miscellaneous heading and then scroll to Other Adjustments to Income. Type in a description that says 1042 S-Treaty Based income and then add the amount as an addition.

@Al Emran 

[Al Emran]

@DaveF1006 , thank you. One last question-- if a resident alien becomes an immigrant in the middle of a year, can that person claim for the tax-treaty benefit for the period of the year the person was on resident alien status? I understand that the filling status depends on the status on December 31, which is immigrant in this instance. N.B: The treaty can apply to resident aliens but not immigrants. 

[DaveF1006]

You will need to file as a dual-status alien in 2024.  You will file a 1040 Resident return for the time you spent in the US and then a 1040 NR return for the time you spent in your country at the end of the year.

TurboTax doesn't support IRS Form 1040-NR. However, we’ve partnered with Sprintax to offer 1040-NR tax preparation for international students, scholars, and nonresident foreign professionals. Go here for more info. 

You can prepare Form 1040 with TurboTax, but you’ll need to use our CD/Download product and print and file (instead of e-file) so you can attach Form 1040-NR.

Here’s how to file:

1. Determine your main tax return:
   • If you’re a nonresident alien who’s changed to a resident alien and are a U.S. resident on the last day of the tax year, Form 1040 is your main return. Include Form 1040-NR as an “informational statement” and be sure to write Dual-Status Return across the top of it.
   • If you’re a resident alien who gives up residence in the U.S. during the year and are not a U.S. resident on the last day of the tax year, Form 1040-NR is your main return . Write Dual-Status Return across the top of the return. Attach an “informational statement” to your return to show the income for the part of the year you’re a resident. You can use Form 1040 as the statement, but be sure to write Dual-Status Statement across the top.
2. Fill out your 1040-NR. Print it.
3. Start filling out your 1040.
4. Open the 1040/1040SR Worksheet in Forms mode when you have completed the interview section of the 1040.
5. Scroll down to the Line 17z - Other Taxes Smart Worksheet on Schedule 2 Part II, Line 17(z) and enter the federal tax withheld from your 1040-NR.
6. Finish filling out your 1040. Choose to file by mail.
7. Print and sign your 1040. Write Dual-status return at the top of the form.
8. Mail your 1040 and 1040-NR together

If you aren’t enclosing a payment, mail your return and statement to: 

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215

If you’re enclosing a payment, mail your return and statement to: 

Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303

How to File as Dual-Status Alien