She's US green card holder. She was employed in a US company till July 2020, then moved back home to Germany.

Per Charles Schwab they told her because  she cashed out the 401k at the end of December 2020 while already being in Germany, so that's the reason why Charles Schwab had to treat her like a "foreigner" in the sense of being outside the US. Technically she's a US Green Card holder without having
residency in the US anymore. 

Aside from the 1042-S, she was still working for that same company till July 2020. The retirement contribution is with the same US employer. 

Thanks for all your help.