How to File Form 1042-S for Foreign Person Income
Learn to correctly file IRS Form 1042-S for income paid to foreign persons. Understand your obligations and ensure accurate tax compliance.
Form 1042-S, titled “Foreign Person’s U.S. Source Income Subject to Withholding,” is an IRS form used for payments to foreign individuals and entities. Its primary purpose is to report specific types of U.S. source income paid to non-resident aliens, foreign corporations, foreign partnerships, and other foreign entities. This includes income subject to U.S. tax withholding under Chapter 3 or Chapter 4 of the Internal Revenue Code. It is a required information return.
Understanding Your Filing Obligation
U.S. withholding agents are responsible for filing Form 1042-S. This includes U.S. businesses, universities, and other organizations paying U.S. source income to foreign persons. The obligation exists even if no tax was actually withheld due to a tax treaty or an exemption.
Many types of U.S. source income require Form 1042-S. Common examples include dividends, interest, royalties, rents, pensions, and certain scholarship or fellowship grants paid to non-resident aliens. This also extends to wages paid to non-resident aliens that are exempt from federal withholding due to a tax treaty.
The form distinguishes between income subject to Chapter 3 withholding, which covers passive income like dividends and interest, and Chapter 4 withholding, which relates to the Foreign Account Tax Compliance Act (FATCA). Recipients can be non-resident alien individuals, foreign corporations, partnerships, estates, or trusts. A separate Form 1042-S must be filed for each recipient, income type, and tax rate applied.
Preparing Form 1042-S
To prepare Form 1042-S, obtain the form and instructions from the IRS website. Gather details about the recipient and the withholding agent.
Recipient information includes full name, address, country of residence, and a U.S. or foreign taxpayer identification number (TIN). The recipient’s entity type (e.g., individual, corporation, partnership) must be specified. For the withholding agent, name, Employer Identification Number (EIN), and address are needed.
The form requires income codes (e.g., interest, royalties) to categorize income. It also requires exemption or withholding rate codes, indicating why a reduced rate or no withholding was applied. The gross income paid and U.S. tax withheld, if any, must be stated. Indicators for Chapter 3 and Chapter 4 status are also required.
Submitting Form 1042-S
Submit completed Form 1042-S to the IRS. The method of submission depends on the number of forms being filed. Electronic filing is required for withholding agents filing 250 or more Forms 1042-S.
Electronic submissions are made through the IRS Filing Information Returns Electronically (FIRE) System, an online platform designed for transmitting various information returns. To use the FIRE system, a Transmitter Control Code (TCC) is required, which must be obtained from the IRS. The FIRE system processes files in a specific format, and scanned documents or PDFs are not accepted.
For those not required to e-file, paper filing remains an option. When submitting paper Forms 1042-S, they must be accompanied by Form 1042-T, Annual Summary and Transmittal of Forms 1042-S. Form 1042-T acts as a transmittal form and does not report income. Paper forms, along with Form 1042-T, are typically mailed to a specific IRS service center as indicated in the instructions for Form 1042-T.
The general filing deadline for Forms 1042-S with the IRS is March 15 of the calendar year following the year the income was paid. If this date falls on a weekend or holiday, the deadline shifts to the next business day. An automatic 30-day extension to file can be requested by submitting Form 8809, Application for Extension of Time To File Information Returns, by the original due date.
Other Important Filing Considerations
The filing of Form 1042-S is closely linked with Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Form 1042 is used to report the total tax withheld and reported on all Forms 1042-S, and it is also used to remit the withheld tax to the IRS. Both forms generally share the same March 15 filing deadline.
Withholding agents are also obligated to furnish copies of Form 1042-S to the income recipients. The deadline for providing these copies to recipients is typically the same as the IRS filing deadline, March 15.
Maintaining accurate records is important for tax compliance. Withholding agents should retain all documentation related to income payments, tax withholding, and the Forms 1042-S filed. Such meticulous record-keeping can prove beneficial for future reference or in the event of an IRS inquiry.