Income for Foreign Nationals (Form 1042-S)
The 1042-S form reports income for foreign nationals who are exempt from U.S. taxation under a tax treaty. Foreign nationals qualified to receive the 1042-S must attach the form, and any other required supporting documents, to their tax returns.
Generally, only a nonresident alien individual may use the terms of a tax treaty to reduce or eliminate U.S. tax on income from a scholarship or fellowship grant. A student (including a trainee or business apprentice) or researcher who has become a resident alien for U.S. tax purposes may be able to claim benefits under a tax treaty that apply to reduce or eliminate U.S. tax on scholarship or fellowship grant income. Most treaties contain a provision known as a "saving clause." Exceptions specified in the saving clause may permit an exemption from tax to continue for scholarship or fellowship grant income even after the recipient has otherwise become a U.S. resident alien for tax purposes.
A resident alien is determined if the taxpayer met one of the two tests for the calendar year. The "green card test" is satisfied if at any time during the calendar year the taxpayer was a lawful permanent resident of the US according to the immigration laws, and the status has not been judicially determined to have been abandoned. The "substantial presence test" is satisfied if the taxpayer has been physically present in the US for at least 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before. Even if you meet the substantial presence test, you can be treated as a nonresident alien if you are present in the United States for fewer than 183 days during the current calendar year, you maintain a tax home in a foreign country during the year, and you have a closer connection to that country than to the United States. This does not apply if you have applied for status as a lawful permanent resident of the United States,or you have an application pending for adjustment of status.
The following individuals may be exempt from resident alien status: foreign government-related individual, teacher or trainee with a J or Q visa, a student with an F, J, M, or Q visa, or a professional athlete temporarily present to compete in a charitable sports event.
If the recipient is a resident for tax purposes and has determined that this amount is taxable, it should be reported on 1040 line 21 Other Income. Include a brief explanation of the tax treaty for the recipient's resident country in the description area for line 21. If US federal tax has been withheld from the income, this amount should be entered on 1040 Line 64 Other Withholding.