Nonresident Alien Wages on Form W-2 and Form 1042-S (2025-2026)
Nonresident return flow (Form 1040-NR)
How a nonresident individual reports U.S.-source income to the IRS.
Classify the income
Effectively connected (ECI) vs. fixed/determinable (FDAP).
Gather U.S.-source documents
1042-S, K-1, or other statements of U.S. income.
Prepare Form 1040-NR
ECI on the main form; FDAP on Schedule NEC.
File and reconcile withholding
Credit amounts already withheld at source.
Key Takeaways
- A nonresident worker's wage file may legitimately involve both Form W-2 and Form 1042-S.
- The forms report different aspects of payroll and withholding.
- Treaty treatment can change federal reporting without erasing state or payroll reporting.
- A short year-end note can make the file much easier to understand later.
Nonresident wages can create more than one reporting form in the file
The IRS pages on aliens employed in the U.S. note that even where wages are exempt from federal income tax under a treaty and reported on Form 1042-S, a Form W-2 may still be required to report state and local wage amounts and state and local withholding. Founders often assume the forms are mutually exclusive in every case. The reporting system is more layered than that.
The real question is what each form is reporting
Form 1042-S is tied to withholding on foreign-person income and treaty-based withholding outcomes. Form W-2 is still the core wage reporting form for payroll. Once you think about them as reporting different pieces of the wage file, the coexistence becomes less surprising.
The payroll file should explain why both forms exist if both appear
A short note in the year-end folder explaining why wages were reported the way they were can save a lot of confusion when a worker, accountant, or platform reviewer opens the file months later.
Frequently Asked Questions
Can a nonresident employee ever receive both a W-2 and a 1042-S?
Yes. The IRS notes that even when federal wages are exempt under a treaty and reported on Form 1042-S, a W-2 may still be required for state and local reporting.
Why do both forms sometimes exist?
Because they can report different parts of the wage and withholding picture.
What should the employer save in the year-end file?
Save a short explanation of why the worker's wages were reported on the forms used.
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