I am trying to file a 1040NR, with W2 wages exempt under a tax treaty. I am getting an IRS rejection FW2-001-01. Can this return be e-filed?
Currently it is not possible to e-file a 1040-NR return that contains W-2 wages which are either partially or fully excluded from income.
Error 1902 generates in the return, disallowing e-filing:
INELIGIBLE FOR E-FILE: The sum of all "Wages" entered in box 1 on screens W2 cannot exceed the amount reported on Form 1040NR, line 8, for returns to be eligible for e-file.
When a W2 is fully excluded from income, Special tax treatment code T on the W2 screen may be used:
When wages are only partially excluded from income under a treaty, a negative adjustment will need to be made. Starting in Drake18, this is done on screen 3 Income, Schedule 1, line 21 as Other Income:
In conjunction with the NR3 screen, section L entry:
In Drake17 and prior, this is done on screen 3 Income, line 7 in conjunction with the NR3 screen, section L entry. You will have to create a detail worksheet for line 7 in order for a negative adjustment to be entered.
When W2 wages are either partially or fully excluded from the total wage amount using a treaty exemption, the W2 included on the transmission do not sum to the total of all W2s present on the return. This causes a mismatch IRS rejection FW2-001-01 which requires the return to be paper filed due to the IRS e-file system limitation.
For more information about income exempt from tax due to a tax treaty, see the 1040-NR Instructions.