Form 1042-S Instructions & Tax Reporting Pointers

What You Need to Know About Form 1042-S

The 1042-S, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, is used to report amounts paid from U.S. withholding agents to non-resident, foreign persons, as described under Amounts Subject to NRA Withholding and Reporting. This may include:

  • Fixed or determinable, annual or periodical (FDAP) income under Chapter 3 withholding and reporting rules, such as interest, dividends, rents, royalties, licensing fees and payments for services rendered. (Pointer: If the payment would be reportable on a 1099 for a U.S. nonexempt recipient, it’s most likely FDAP income.)
  • An additional layer of Foreign Account Tax Compliance Act (FATCA) compliance for applicable financial payments under Chapter 4 withholding and reporting rules

Important considerations:

  • A foreign person can include individuals, corporations, partnerships, and limited-liability companies
  • A withholding agent is someone who makes a payment to a non-U.S. person
  • There are no NRAs who are exempt recipients for 1042-S purposes
  • U.S. source FDAP income is reportable on a 1042-S regardless of whether it was subject to withholding
  • A separate Form 1042-S is required for: 1) Each recipient regardless of whether you withheld tax, 2) Each type of income that you paid to the same recipient and 3) Each tax rate (if you withheld at more than one tax rate) of a specific type of income that you paid to the same recipient

The Form 1042-S can be filed electronically, or on paper. Withholding agents processing 250 or more forms must file electronically – as do withholding agents that are financial institutions.

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