How do I report a tax-exempt 1042-S stipend as a resident alien?

[Climate_aug]

Hello,

I am using TurboTax Desktop for my 2025 tax return and would appreciate some guidance.

I am an F-1 student, but I was already a resident alien for U.S. tax purposes in 2025.

I received a Form 1042-S for Summer 2025 stipend income, and my role letter describes it as non-wage income. My university payroll tax team later confirmed in writing that this stipend was exempt under tax treaty and therefore not taxable. They also told me that I received the 1042-S because the stipend was treated under a tax treaty regardless of my residency status.

Here are the details of the 1042-S:

• Box 1 income code: 16
• Box 3 chapter indicator: 3
• Box 3a exemption code: 04
• Box 3b tax rate: 00.00
• Box 4a exemption code: 16
• Federal tax withheld: 0

I also have regular W-2 wage income, and my understanding is that I may separately claim the China treaty 5,000 exemption for wage income under Article 20(c), which should not conflict with the treaty treatment of this 1042-S stipend income.

I also came across a prior TurboTax Community discussion with a background very similar to mine:

From that discussion, my understanding is that one common approach is to enter a negative adjustment in Less Common Income / Miscellaneous Income for the treaty-exempt 1042-S amount, with a description such as “tax treaty exemption Article 20(b).”

What confuses me is this:

If I enter the negative treaty adjustment in Other Miscellaneous Income, where should I enter the positive 1042-S income amount so that it offsets correctly and is reported in the proper place?

More specifically:

1. Should the 1042-S code 16 income be entered first somewhere else as scholarship/fellowship income, and then adjusted out as treaty-exempt income?
2. Or should both the positive and negative amounts be entered in Other Miscellaneous Income?
3. I seem to be having trouble finding where to enter this in the Education / 1098-T section. Is that even the correct place for this type of 1042-S income?

I am mainly trying to understand the correct TurboTax Desktop entry method for a treaty-exempt 1042-S stipend with income code 16. Thank you very much. 

[DaveF1006]

Here are the complete steps and answers to your questions.

1. Where to Report the 1042-S Income (The "Positive" Entry)

Because your stipend (Code 16) is technically a scholarship/fellowship, it needs to be recorded as such before you can "exempt" it. Do not use the 1098-T section if you didn't receive one or if this is purely a stipend for living expenses. Instead, follow this path:

1. Go to Federal Taxes -> Wages & Income.
2. Scroll down to Less Common Income.
3. Select Miscellaneous Income, 1099-A, 1099-C (Start/Revisit).
4. Select Other reportable income (Start/Revisit).
5. When asked "Any Other Reportable Income?", click Yes.
6. Description: "1042-S Scholarship/Fellowship Income"
7. Amount: Enter the total gross amount from your 1042-S.

2. Offsetting with the Treaty Exemption (The "Negative" Entry)

Now that the income is reported, you need to subtract it so you aren't taxed on it.

1. In the same Other reportable income section, add another item.
2. Description: "U.S.-China Tax Treaty, Art. 20(b) exemption"
3. Amount: Enter the amount as a negative number (e.g., -5,000).
4. Result: These two entries cancel each other out on Schedule 1, Line 8z, resulting in a $0 net impact on your Adjusted Gross Income (AGI).

3. Handling the W-2 Treaty Exemption ($5,000)

For your Article 20(c) wage exemption, the process is similar but distinct. You must enter your W-2 exactly as it appears first. Then, you manually reduce your taxable income:

1. Go back to Miscellaneous Income -> Other reportable income.
2. Description: "U.S.-China Tax Treaty, Art. 20(c) exemption on W2"
3. Amount: Enter -5,000.
4. Note: This will effectively reduce your total income on your 1040 by $5,000.

4. Required Paperwork: Form 8833

TurboTax Desktop does not automatically generate Form 8833 (Treaty-Based Return Position Disclosure). As a resident alien claiming a treaty, you are legally required to attach this form to disclose why you are exempting this income.

1. You will need two Form 8833s: One for the Article 20(b) stipend and one for the Article 20(c) wages (or one form clearly listing both).
2. Since TurboTax may not support the e-filing of Form 8833 for individuals in all scenarios, you need print and mail your return.
3. Attach the Form 8833 and a copy of your 1042-S to the back of your Form 1040.

Here is a link to download both 8833's to fill out and include in your return

[Climate_aug]

Thank you very much for the detailed reply. My current understanding is that the total treaty-related amount claimed on the return could be $13,000 if the $8,000 code 16 income is exempt under Article 20(b) and the separate full $5,000 wage exemption is claimed under Article 20(c)

I have two follow-up questions, mainly because I want to make sure the reporting method matches the IRS form layout.

First, regarding Form 8833 and paper filing: my understanding from IRS Pub. 519 is that there is an exception for income of students/trainees/teachers, and that this includes taxable scholarship and fellowship grants. Since this 1042-S is income code 16 and my university confirmed it is treaty-exempt stipend income, could you clarify why you believe I would still be required to file Form 8833 and mail the return in this case? I have copied the exception statement from the IRS website below: 

Exceptions.

You do not have to file Form 8833 for any of the following situations. 1. You claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other FDAP income ordinarily subject to the 30% rate. 2. You claim that a treaty reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions; or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.

Second, regarding where to enter the income in TurboTax Desktop: if I enter both the positive 1042-S amount and the negative treaty adjustment in Other Reportable Income / Miscellaneous Income, wouldn’t both entries go to Schedule 1 line 8z?

My confusion is that Schedule 1 line 8r is specifically for scholarship and fellowship grants not reported on Form W-2. Since my 1042-S is code 16 scholarship/fellowship income, I am wondering whether the positive amount should appear on line 8r, with only the treaty-exempt negative adjustment on line 8z.

I do have a 1098-T, but this Summer 2025 stipend appears to be separate from my 1098-T Box 5. I also tried the Education / 1098-T section in TurboTax, but it seems geared toward education credits and tells me not to include amounts already shown on another tax form, which made me unsure whether that is the correct place for this 1042-S income.

Many thanks for your help.

[DaveF1006]

It depends. Entering both the positive amount and the negative treaty adjustment in "Other Reportable Income" will generally net them to zero on Schedule 1, line 8z. While line 8r is specifically for scholarships, using the "Other Reportable Income" section is the standard method for manually handling treaty-exempt income. 

You are correct. You do not need to report 8833 because you do qualify for an exception, being a student that has either a taxable scholarship or grant.

[Climate_aug]

Thanks so much! I think I will follow the STEP 1-3 and e-file it and make sure that both the positive and negative entries appear in Other Miscellaneous Income.

Best wishes

[Climate_aug]

And I may have one more clarification question.

Would your suggested treatment for the 1042-S income be separate from the scholarship/grant amounts already reflected in my Form 1098-T?

In my case, Form 1098-T Box 5 (scholarships or grants) is larger than Box 1 (payments received for qualified tuition and related expenses). When I enter the 1098-T information in the education section, TurboTax seems to treat the excess amount (Box 5 minus Box 1) as taxable scholarship income, which I understand. My understanding is that the scholarships/grants reported in Box 5 of Form 1098-T are different from what is usually meant by income code 16 on Form 1042-S.

Based on what I see in my university system, the Form 1098-T Box 5 amount appears to be different from the direct Summer non-wage stipend that was reported separately on my Form 1042-S with income code 16.

So I wanted to confirm whether the 1042-S stipend should be treated separately from the Form 1098-T Box 5 amount in order to avoid double counting.

Thank you very much.

[MarilynG1 · Accepted solution]

Yes, since the 1042-S income is not included in Box 5 Scholarships on your 1098-T, you are reporting correctly by entering the 1098-T (which will add taxable scholarship income), and entering the 1042-S income/tax treaty offset in Miscellaneous Income.

@Climate_aug