If your Form 1042-S shows Income Code 16 in Box 1, a U.S. university or research organization has reported paying you a scholarship or fellowship grant from a U.S. source. That’s what Income Code 16 on Form 1042-S means: the payment is classified as a grant, not wages, and it may be partly taxable, fully taxable, or fully exempt depending on whether you’re a degree candidate, how you spent the money, and whether your country has a tax treaty with the United States.
What Income Code 16 Tells You
Form 1042-S reports U.S.-source income paid to foreign persons subject to withholding. Box 1 carries a numeric code identifying the payment type, and Code 16 is reserved for scholarship or fellowship grants.1Internal Revenue Service. 2026 Instructions for Form 1042-S Other codes cover wages, royalties, and dividends, so Code 16 confirms the payer treated your money as a grant rather than compensation for services.
Three boxes on the form drive everything you do next: Box 2 (gross income), Box 3b or 4b (the withholding rate applied), and Box 7 (federal tax actually withheld). The withholding agent — typically your university — must furnish the form to you by March 15 of the year after payment.2Internal Revenue Service. Instructions for Form 1042-S (2026)
One boundary worth stating up front: if a scholarship required you to teach, do research, or perform other services as a condition of receiving the funds, the payment for those services is compensation, not a grant, and should not be on a 1042-S under Code 16 at all. Different rules apply.
Which Part of Your Grant Is Actually Taxable
Federal law excludes a “qualified scholarship” from gross income when the recipient is a degree candidate at an eligible educational institution.3Office of the Law Revision Counsel. 26 USC 117 – Qualified Scholarships That exclusion is narrower than most students expect. It covers only:
- Tuition and required enrollment fees
- Books, supplies, and equipment required for your courses of instruction
Anything else the grant paid for — room and board, travel, health insurance, optional equipment, personal living costs — is non-qualified and taxable. A stipend designated for off-campus rent is fully taxable even if you’re a degree candidate. You’re the one responsible for tracking how the money was spent and calculating the taxable portion on your return.
A laptop is only a qualified expense if your program specifically requires it as equipment for coursework. “Useful to have” doesn’t meet the test.
If you’re not a degree candidate — a visiting researcher on a fellowship, for example — Section 117 doesn’t help you. Absent a treaty, the entire grant is taxable.
Why 14%, 30%, or 0% 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 most foreign students, though, the taxable portion of a scholarship gets withheld at a reduced 14% rate. That reduction 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
The 14% rate covers two situations: the taxable portion of a scholarship paid to a degree candidate (the part exceeding qualified expenses), and fellowship grants paid to non-degree recipients by qualifying payers such as tax-exempt organizations, foreign governments, international organizations, or the U.S. government.6Office of the Law Revision Counsel. 26 USC 1441 – Withholding of Tax on Nonresident Aliens
If your visa type doesn’t qualify, or if your school couldn’t tell which portion of your grant went to qualified expenses, expect 30% on the whole payment. That’s why getting documentation to your school’s international tax or payroll office early matters. Overwithholding is recoverable only by filing a return and waiting.
A tax treaty can reduce the rate further, sometimes to zero.
How to Claim a Treaty Exemption
Many U.S. tax treaties contain a scholarship or fellowship article that exempts Code 16 income from U.S. tax in whole or in part. The IRS maintains a treaty table listing which countries have such provisions and the conditions attached to each.7Internal Revenue Service. Tax Treaty Table 2 China, France, Germany, South Korea, and India are among the countries with scholarship provisions, though each treaty has its own limits on duration, dollar amount, and eligible payers.
To claim the exemption, file the right form with your university before payment, not after.
For a noncompensatory scholarship (grant money not tied to services), use Form W-8BEN. You certify your foreign status, name your country of tax residence, and cite the treaty article you’re relying on.8Internal Revenue Service. Instructions for Form W-8BEN (10/2021) Most treaties require that you were a resident of the treaty country at or immediately before entering the United States; you can still qualify after you’ve moved.
If you also receive wages from the same institution and both the wages and the scholarship qualify for treaty benefits, Form 8233 lets you cover both in one filing.9Internal Revenue Service. Claiming Treaty Exemption for a Scholarship or Fellowship Grant10Internal Revenue Service. Instructions for Form 8233
Without a valid form on file when the payment goes out, the school must withhold at the statutory rate. Late paperwork means overpayment and a refund claim later.
Filing a Return and Recovering Overwithheld Tax
If any part of your Code 16 income was taxable, or if tax was withheld on it, you generally need to file Form 1040-NR, the nonresident alien income tax return.11Internal Revenue Service. About Form 1040-NR, U.S. Nonresident Alien Income Tax Return
Your deadline depends on what else you received during the year. With any U.S. wages subject to income tax withholding, the return is due April 15. With only non-wage income like a scholarship, the deadline moves to June 15.12Internal Revenue Service. Instructions for Form 1040-NR (2025)
On the return, take the gross figure from Box 2 of the 1042-S, subtract your qualified education expenses, and report the remainder. Taxable scholarship income not connected to a U.S. trade or business goes on Schedule NEC and is taxed at the flat rate that applies to you — 30%, 14%, or a treaty rate. Then claim the amount from Box 7 as tax already paid. If withholding exceeded your actual liability, the difference comes back as a refund.
Attach a copy of Form 1042-S to your return. The IRS also recommends attaching a short statement showing how you split the grant between qualified and non-qualified use, particularly when you’re excluding part of it under Section 117.
You’ll Need an SSN or ITIN
Form 1040-NR requires a taxpayer identification number. If you’re work-authorized you may already have a Social Security Number; otherwise, apply for an Individual Taxpayer Identification Number using Form W-7, submitted with your return and identity documents.13Internal Revenue Service. Topic No. 857, Individual Taxpayer Identification Number (ITIN) Start early. ITIN processing takes weeks, and the IRS won’t process your return without a valid number.
Form 8843 Is Separate
Nonresident aliens on F, J, M, or Q visas should also file Form 8843 to document the days excluded from the substantial presence test.14Internal Revenue Service. About Form 8843, Statement for Exempt Individuals The presence test decides whether you’re a resident or nonresident alien for tax purposes, which changes almost everything downstream. Attach Form 8843 to your 1040-NR if you’re filing one. If your entire grant was non-taxable and you have no filing obligation, mail Form 8843 to the IRS on its own by the return due date.15Internal Revenue Service. Form 8843, Statement for Exempt Individuals
Recovering Overwithheld Amounts
Overwithholding on Code 16 income is common. It happens when a school withholds on money that turns out to cover tuition, or when treaty paperwork lands after the first payments have already been made. Filing Form 1040-NR is how you reconcile the numbers and claim a refund for the excess. Refunds can take several months, longer for first-time filers who are also applying for an ITIN. Keep every Form 1042-S, W-8BEN, and expense record; if the IRS asks questions, those documents are your answer.