On Form 1040-NR, income from a 1042-S goes in one of two places depending on whether it is effectively connected with a U.S. trade or business: effectively connected income is reported on page 1 alongside wages, and non-connected income is reported on Schedule NEC. The federal tax withheld, taken from Box 10 of the 1042-S, is claimed as a credit on line 25g of Form 1040-NR.
Start With the Income Code in Box 1
Box 1 of each 1042-S carries a two-digit income code that tells you what kind of payment you received: 01 for interest, 12 for royalties, 16 for scholarships, 17 for independent personal services, and so on.1Internal Revenue Service. Instructions for Form 1042-S (2026) That code, together with whether the payment is connected to a U.S. trade or business, determines which part of Form 1040-NR the income lands on and how it is taxed.
Box 2 shows the gross amount you were paid before any withholding or exemption.1Internal Revenue Service. Instructions for Form 1042-S (2026) That gross figure is your starting number regardless of where the income ends up on the return. If you received more than one 1042-S, work through each form separately.
Effectively Connected Income: Page 1 of Form 1040-NR
Income that is effectively connected with a U.S. trade or business is reported on page 1 of Form 1040-NR, in the same section as wages and other earned income.2Internal Revenue Service. 2025 Instructions for Form 1040-NR For 1042-S recipients, the most common examples are scholarship or fellowship amounts used for living expenses rather than tuition, and payments for personal services performed inside the United States.
Effectively connected income is taxed at the graduated rates that apply to U.S. citizens and residents, and you can take the standard deduction against it where the rules otherwise allow.
Non-Connected Income: Schedule NEC
Income that is not effectively connected with a U.S. trade or business is reported on Schedule NEC (Form 1040-NR). This is where passive income belongs: dividends, royalties, certain interest, pensions, gambling winnings.3Internal Revenue Service. 2025 Schedule NEC (Form 1040-NR) Schedule NEC lists income types down the rows and has separate columns for different tax rates.
The default rate on non-connected income is a flat 30% on the gross amount, with no deductions allowed.2Internal Revenue Service. 2025 Instructions for Form 1040-NR If a tax treaty gives you a lower rate, put the income in the column that matches the treaty rate. The total tax figured on Schedule NEC carries to line 23a of Form 1040-NR, where it is added to the tax on your effectively connected income.4Internal Revenue Service. Form 1040-NR
Claiming the Withholding Credit on Line 25g
Reporting a 1042-S is only half the job. The other half is claiming credit for the tax your payer already sent to the IRS. Box 7a shows federal tax actually withheld under Chapter 3 or Chapter 4, and Box 10 shows the total withholding credit available to you, which combines Box 7a with any additional withholding by other agents and adjustments for overwithholding.1Internal Revenue Service. Instructions for Form 1042-S (2026)
Enter the Box 10 amount on line 25g of Form 1040-NR.5Internal Revenue Service. Instructions for Form 1040-NR – Introductory Material Line 25g is the line specifically designated for 1042-S withholding, and the credit reduces your total tax liability dollar for dollar. If the withholding exceeds what you actually owe, the difference is refundable. The IRS cross-references your line 25g entry against the copies your payer filed with the agency, so the number on your return should match Box 10 exactly.
If you received multiple 1042-S forms, add the Box 10 amounts together and enter the combined total on line 25g.
If a Tax Treaty Reduces or Exempts the Income
If your country of residence has an income tax treaty with the United States, some of your 1042-S income may be taxed at a reduced rate or fully exempt. The 1042-S itself reflects any benefit already applied at the time of payment. Box 3 shows the chapter indicator (“3” or “4”), Box 3a shows the exemption code explaining why a reduced rate was used, and Box 3b shows the actual rate applied.6Internal Revenue Service. 2026 Form 1042-S Exemption code 04 in Box 3a, for instance, means the reduced rate came from a treaty.
Treaty-exempt income shows up in two places on your 1040-NR. Schedule OI, Item L asks for the country, the specific treaty article, how many prior years you claimed the benefit, and the current-year exempt amount.2Internal Revenue Service. 2025 Instructions for Form 1040-NR The same exempt amount also goes on line 1k of Form 1040-NR so it stays out of your taxable total.4Internal Revenue Service. Form 1040-NR
Beyond Schedule OI, the IRS requires a formal treaty-position disclosure on Form 8833 whenever your return takes a position that a treaty overrides the Internal Revenue Code and reduces your tax.7Internal Revenue Service. Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) Missing this disclosure carries a $1,000 penalty for each failure.8Office of the Law Revision Counsel. 26 U.S. Code 6712 – Failure to Disclose Treaty-Based Return Positions The penalty applies even when the underlying treaty benefit is legitimate, so if your 1042-S reflects a treaty rate, expect to file Form 8833 with the return.
Non-connected income that qualifies for a treaty rate but is not fully exempt still belongs on Schedule NEC, in the column for that lower rate rather than the 30% column.
Attaching the 1042-S to a Paper Return
If you file on paper, attach Copy C of each 1042-S to the front of Form 1040-NR, in the area designated for withholding forms.5Internal Revenue Service. Instructions for Form 1040-NR – Introductory Material Any Form 8833 for treaty positions goes behind the return. Keep a full copy of the package, including every 1042-S, for your own records.
Refund Timing on Returns With 1042-S Withholding
A refund driven by 1042-S withholding takes noticeably longer than a typical refund. The IRS says these refunds can take up to six months from either the original due date of the 1040-NR or the date you actually filed, whichever is later.9Internal Revenue Service. This Online Tool Helps Taxpayers Track Their Refund The delay comes from manual verification of 1042-S withholding credits against the copies your payer filed. If you’re relying on the refund, plan around that timeline.