Received 1042-S after File Tax by Mail, What do I do?

[BY2022]

Hi Tax Experts,

I appreciate your help and suggestions! I have some questions about the 1042-S form. 

Both my husband and I are international students receiving W-2 income forms. We are being taxed for resident purposes since we have lived in this country for more than five years. This is the first year we are filing jointly, and I completed our tax return on February 05, however, we are so surprised to receive a 1042-S form (his form) with exception code 16 today. 

I have done my online search, seeing people suggesting amendments on Turbotax; reporting gross income under other income, and reporting withholding tax under other income tax paid. However, I highly doubt whether it was the right way because before I filled in the 1042-S information, we were supported to get about a $4000 federal refund, after I put in the income and paid tax as instructed on the 1042-S, it showed that we would only get less than $200 federal refund. How come a gross income of about $8000 with a $1200 federal tax withholding makes such a huge difference in tax refund amount? With this doubt, I discontinued this amendment.

Then, I searched online again and I saw some answers such as if it is a scholarship or fellowship with exception code 16, they could be nontaxable depending on the types of use, therefore, these amounts on 1042-S do not necessarily need to be reported. Meanwhile, I also saw some suggestions like reporting the gross income in a negative number. In addition, I also saw some suggestions to report under education. (My husband did not receive a 1098-T, but I received a 1098-T and had reported it for education credits).

I am very confused at this point. I appreciate all the professional insights. I want to report taxes correctly since I do not want to be fined in the future. But if I can leave things like this, that would be awesome. 

I would like to hear your opinion. 

Thank you soooooo much!

[DaveF1006]

It depends on a variety of things. The 1042S is taxable income that needs to be reported. After reporting the income, there are a couple of things that could have possibly happened.

1.  How much is your adjusted gross income for the year. The educational credit could have been reduced if your  combined incomes were over $180,000.
2.  The additional income might push you into a higher tax bracket, resulting in a higher overall tax rate on your income and the $1200.
3. How did you report the 1042S? Did you report as a scholarship in the educational section. If you did and your scholarship exceeded your education expense? If you did report it here, some of the $8000 may have been reduced by the amount of your educational expenses. 
4. How did you report your withholding of $1200. Did you report it in the following manner?

 To report the US tax paid:

1. With your return open
2. Click on Deductions & Credits
3. Scroll down to Estimates and Other Taxes Paid\
4. Click on Other Income Taxes
5. Scroll down Other Income Taxes
6. Click on Withholding not already entered on a W-2 or 1099

Without looking at your return, these are only some suggestions that could have contributed to the reduction of your refund.

[BY2022]

Hi Dave,

Thank you so much for your response! I truly appreciate your input on my case. 

I think you are right that by adding the income on 1042-S, we are hitting a higher tax bracket, but our total did not reach $180,000. So, does that mean the education expense will not apply anyway? (I had a $13,000 tuition fee with a 1098-T form, he doesn't have a 1098-T form).

And yes, I tried to report 1042-S income and withholding tax using this instruction:

Report Other 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 the description and amount

Report the US tax paid:

With your return open
Click on Deductions & Credits
Scroll down to Estimates and Other Taxes Paid\
Click on Other Income Taxes
Scroll down Other Income Taxes
Click on Withholding not already entered on a W-2 or 1099

This is where I saw the big drop from a $4,000 tax refund to less than $200. However, I did not try to add the 1042-S under the education section. I canceled the amendment since I was so confused about what to do. 

My goal is to do tax the correct way meanwhile maximizing the tax return refund money to us.

My confusing parts are:

Shall we report it as other income? 

Shall we report it as education expenses?

Or shall we report it both as other income and education expenses?

And do we report positive or negative numbers in those sections?

If there is no way to increase the $200 tax refund, that is fine. May I please have another question?

We filed by mailing out all the paper forms, if we do the amendment on Turbotax, how to submit the physical 1042-S form; it has a copy for federal and a copy for state tax return. 

Thank you so much again for your time and help!

[DaveF1006]

I would report it as Scholarship income in the manner that I prescribed to see if this would make a difference. I suggest reporting in this manner because some of the educational expense may offset some of the taxable income from the scholarship.  it may not make a difference but you can try.

The $180,000 is the amount that the educational credit begins its phase out it sounds like you will receive the credit.