Income Code 16 on Form 1042-S identifies the payment as a scholarship or fellowship grant paid from a U.S. source to a foreign person.1Internal Revenue Service. 2026 Instructions for Form 1042-S If your university sent you a 1042-S with a 16 in the income code box, it is telling both you and the IRS that the money it paid you is grant money, not wages. Whether any of it is actually taxable, and whether you’re owed a refund of the tax that was withheld, depends on three things: whether you’re a degree candidate, how you spent the money, and whether your country has a tax treaty with the United States.
What the Form Is Telling You
Form 1042-S reports U.S.-source income paid to foreign persons that is subject to withholding. Box 1 carries a numeric code identifying the type of payment, and Code 16 is the code for scholarship and fellowship grants. Box 2 shows the gross amount paid to you, Box 7 shows the U.S. tax withheld, and the rate applied appears on the form as well. You’ll need all of those figures if you file a return.
The withholding agent is the U.S. institution that paid you, typically a university or research organization. It has to furnish your 1042-S by March 15 of the year after payment.2Internal Revenue Service. Instructions for Form 1042-S (2026)
One boundary worth knowing up front: Code 16 covers grant money, not pay for work. If your school required you to teach, run a lab, or assist with research as a condition of the money, that portion is compensation, not a scholarship, and it belongs under a different income code with different rules.3Office of the Law Revision Counsel. 26 USC 117 – Qualified Scholarships If service pay is showing up under Code 16, the form is wrong and worth flagging with your payroll office.
Is the Scholarship Actually Taxable?
Not every dollar in Box 2 is taxable. Under Section 117 of the Internal Revenue Code, a qualified scholarship received by a degree candidate at an eligible institution is excluded from gross income.3Office of the Law Revision Counsel. 26 USC 117 – Qualified Scholarships Two conditions have to hold. You have to be enrolled in a program that leads to a degree, and the money has to be spent on qualified education expenses.
Qualified expenses are narrow:
- Tuition and fees required for enrollment
- Books, supplies, and equipment required for your courses
Anything else is non-qualified. Room and board, travel, personal living costs, health insurance, and optional equipment all fall outside the exclusion. The portion of your grant that paid for those things is taxable, even if you’re a degree candidate. A stipend that goes entirely to off-campus rent is fully taxable. You are the one who has to track how the money was used and calculate the taxable portion when you file.
If you’re not a degree candidate — a visiting researcher on a fellowship, for instance — the Section 117 exclusion doesn’t apply at all. Unless a treaty helps, the entire grant is taxable.
Why 14% or 30% Was Withheld
The default federal withholding rate on U.S.-source income paid to a nonresident alien is 30%.4Internal Revenue Service. Fixed, Determinable, Annual, or Periodical (FDAP) Income For taxable scholarship or fellowship money, there’s a reduced rate of 14%, and it applies if you’re temporarily in the United States on an F, J, M, or Q visa.5Internal Revenue Service. Publication 515 (2026), Withholding of Tax on Nonresident Aliens That covers most foreign students and exchange visitors.
You’ll see the full 30% rate applied when the recipient isn’t on one of those visa types, or when the school has no documentation to distinguish qualified expenses from non-qualified ones. If the payer can’t tell what portion was tuition and what portion was living expenses, it must withhold at 30% on everything. Getting your paperwork to the international tax office early is what keeps this from happening.
Treaty benefits sit on top of these statutory rates and can bring them down further, sometimes to zero.
Using a Tax Treaty to Reduce Withholding
Many U.S. tax treaties exempt scholarship and fellowship income from U.S. tax, either partially or fully. The IRS publishes a table listing the countries whose residents can claim a Code 16 exemption, and countries with scholarship provisions include China, France, Germany, South Korea, and India, among others.6Internal Revenue Service. Tax Treaty Table 2 Each treaty has its own conditions on how long you can stay, how much can be exempt, and who the payer has to be.
To claim the exemption, you file paperwork with your school before the payment goes out, not with the IRS afterward. For scholarship money that isn’t tied to services, the form is IRS Form W-8BEN. On it, you certify your foreign status, identify your country of tax residence, and cite the treaty article.7Internal Revenue Service. Instructions for Form W-8BEN (10/2021) Most treaties require you to have been a resident of the treaty country when you entered the United States, but you don’t have to still maintain an address there.
If the same school pays you both wages and a scholarship, and both qualify for treaty benefits, you use Form 8233 instead to claim the exemption on both in one filing.8Internal Revenue Service. Claiming Treaty Exemption for a Scholarship or Fellowship Grant9Internal Revenue Service. Instructions for Form 8233
Without a W-8BEN or Form 8233 on file at the time of payment, the school has to withhold at the statutory rate. You can still recover the money by filing a return, but the refund can take months.
Filing a U.S. Tax Return
If any part of your Code 16 income was taxable, or if U.S. tax was withheld from it, you generally need to file a return. The nonresident form is Form 1040-NR.10Internal Revenue Service. About Form 1040-NR, U.S. Nonresident Alien Income Tax Return
Your deadline depends on what other income you had. If you also received wages subject to U.S. withholding during the year, the return is due April 15. If the only U.S. income you had was non-wage income like a scholarship, you have until June 15.11Internal Revenue Service. Instructions for Form 1040-NR (2025)
On the return, you take the gross amount from Box 2 of your 1042-S, subtract your qualified education expenses, and end up with the net taxable amount. Taxable scholarship income that isn’t connected to a U.S. trade or business gets reported on Schedule NEC, where it’s taxed at the flat rate that applies to you: 30%, 14%, or the treaty rate. Then you claim credit for the tax already withheld, which appears in Box 7 of your 1042-S. If withholding exceeded what you owe, you get a refund.
Attach a copy of your 1042-S to the return. The IRS also suggests attaching a short statement showing how you split the grant between qualified and non-qualified expenses, especially if you’re excluding a portion under Section 117.
You Need an SSN or ITIN First
You can’t file 1040-NR without a taxpayer identification number. If you’re work-authorized, you may already have a Social Security Number. If not, you apply for an Individual Taxpayer Identification Number by submitting Form W-7 with your return and identity documents.12Internal Revenue Service. Topic No. 857, Individual Taxpayer Identification Number (ITIN) ITIN processing runs several weeks, so starting well before the deadline matters.
Form 8843 Is Separate
If you’re on an F, J, M, or Q visa, you should also file Form 8843, which documents days of U.S. presence that don’t count toward the substantial presence test.13Internal Revenue Service. About Form 8843, Statement for Exempt Individuals That test is what determines whether the IRS classifies you as a resident or nonresident alien in the first place. Attach Form 8843 to your 1040-NR if you’re filing one. If your entire scholarship was non-taxable and you have no filing requirement otherwise, you still mail Form 8843 on its own by the return due date.14Internal Revenue Service. Form 8843, Statement for Exempt Individuals
Getting Back Money That Was Overwithheld
Overwithholding is common with Code 16. It happens when the school withholds at 14% or 30% on money that turns out not to be taxable, either because it went to tuition or because a treaty exempts it. It also happens when treaty paperwork gets filed after the school has already sent out payments and withheld at the full rate.
The only way to recover that money is to file a 1040-NR and claim the excess as a credit. The IRS refunds the difference between what was taken and what you actually owed. Refunds can stretch to several months, and longer for first-time filers who are also applying for an ITIN. Keep every 1042-S, every W-8BEN or 8233 you signed, and receipts or account statements showing what your grant paid for. If the IRS asks questions, those records are what answer them.