1042-S from NJ Fellowship - not taxable in state but turbotax registers it as taxable income

[Alam12345]

Hi,

I am an F1 PhD student who has been in the US for 5 years. This year, I am a tax resident and filing through turbotax. In 2022, I received a 1042-S for an academic fellowship in New Jersey. This income in not taxable in NJ (Exception code 15 on my 1042-S), but it is taxable federally. According to the instructions in here, I added this income under "Other reportable income" and the federal tax paid under "Withholding not already entered on a W-2 or 1099."

When my information is automatically transferred to the state return, turbotax is telling me I owe state tax in NJ for this income. The software does not let me delete this income, so I have no way to certify that this income is not taxable in NJ.

How can I file correctly? This concerns my refund as the extra taxable income is increasing my taxes. One possible way may be to add additional state income not reported in the federal return, and claim this income as negative the amount not taxable in NJ. Is this allowed or correct?

Thank you.

[KrisD15]

Exception code 15 means you are not subject to the Chapter 4 withholding of 30%. 

I see nothing to suggest the income, if not used for education expenses, would be non-taxable for the State of New Jersey.

Here is a link about Code 15. 

Here is a conversation about New Jersey Scholarships and Fellowships. 

[Alam12345]

Thank you for your response. In the link you posted, there are a few conditions for the fellowship not being taxable in NJ. Since it is a fellowship stipend, I think my fellowship meets these conditions. This is also confirmed by my school's documents here and here.

If that's the case, how can I correctly report it on turbotax?

Thank you.

[Cynthiad66]

You can report the 1042-S as other reportable income.

Open your return in TurboTax 

Click on Wages & Income 

Scroll down to All Income 

Scroll down to Less Common Income 

Scroll down to Miscellaneous Income, 1099-A, 1099-C 

Click start 

Scroll down to Other reportable income 

Answer yes 

Enter description and amount For the income description, record it as 1042 S fellowship income and then the amount.

To get credit for the taxes withheld; 

• Go to Federal>deductions and credits>estimates and other taxes paid
• Go Other income Taxes>scroll to the bottom of the page
• Go to other income taxes paid>withholding not already on a W2 or 1099

@Alam12345

[Alam12345]

Hi,

Thank you for your response. As I mentioned in my question, I have no problem reporting the 1042 S income on the federal return, and I have already done these instructions and reported my income and federal withholding. The issue is that when this information is transferred to the state taxes section (NJ), I cannot remove this income. Since this income (fellowship for education purposes) is not taxable in NJ, turbotax is calculating my owed taxes to be higher than what they actually are.

Therefore, I need to know how to report that this income is not taxable in NJ, in the state section of turbotax.

Thank you.

[ShirlynW]

Would you clarify how you entered you fellowship? 

@ShirlynW

[Alam12345]

Sure, I followed these instructions:

____________________________

Open your return in TurboTax 

Click on Wages & Income 

Scroll down to All Income 

Scroll down to Less Common Income 

Scroll down to Miscellaneous Income, 1099-A, 1099-C 

Click start 

Scroll down to Other reportable income 

Answer yes 

Enter description and amount For the income description, record it as 1042 S fellowship income and then the amount.

To get credit for the taxes withheld; 

• Go to Federal>deductions and credits>estimates and other taxes paid
• Go Other income Taxes>scroll to the bottom of the page
• Go to other income taxes paid>withholding not already on a W2 or 1099

____________________________

Then they were automatically transferred to my state return.

[AmyC]

I think the best option will be on the Other Non-Wage Income. It allows you to enter the description and the negative income.