If a non U.S. person, such as a nonresident alien, foreign corporation, or foreign partnership was paid a U.S. sourced income, then that transaction has to be reported to the IRS using Form 1042-S. This form covers a wide source of income such as dividends, interest, royalties, rents, scholarships, and other FDAP income.<\/p>\n
Since Form 1042-S filing requirements follows its own set of IRS rules, deadlines, and withholding obligations. In this e-filing guide, we’ll break down the what, when, and how of Form 1042-S filing.<\/p>\n
Each Form 1042-S tells the IRS who paid, who got paid, what type of income it was, and how much tax you withheld under Chapter 3 or Chapter 4 (FATCA). Accurate Form 1042-S filings protect your cash flow, your relationships with payees, and your audit profile.<\/p>\n
The IRS uses the information reported in Form 1042-S and cross-checks it with the withholding deposits on Forms 1042 and matches what foreign recipients report for their own tax or credit claims.<\/p>\n
Any missing, miscoded, or late forms trigger penalties of $60, $130, or $340 per form depending on how late you file. For intentional disregard, it is $680 per form (or 10% of the amount required to be reported, if greater). Under FATCA rules, an incorrect recipient status may even result in 30% withholding.<\/p>\n
Form 1042-S is filed only by withholding agents, meaning any U.S. or foreign person or business that controls or pays U.S.-source FDAP income to foreign person. That includes individuals, C-corps, LLCs, partnerships, trusts, estates, associations, universities, and other intermediaries.<\/p>\n
Unlike 1099, Form 1042-S does not have a $600 threshold. Any amount that was or should have been subject to withholding under Chapter 3 or Chapter 4 must be reported. Even if there is a treaty that reduces withholding by 0%, you still must file 1042-S<\/a> and show 0% tax with the correct exemption or treaty code.<\/p>\n Common exceptions<\/strong><\/p>\n Bank-deposit interest paid to nonresident aliens, some short-term OID not subject to Chapter 3 or Chapter 4 withholding, and one-off personal payments made outside a trade or business are not reportable. Section 5000C federal procurement withholding or certain expatriate distributions, still require Form 1042-S, if tax is withheld.<\/p>\n Pro tip:<\/strong> Review the payee\u2019s W-8 (BEN\/BEN-E\/ECI\/EXP\/IMY) before you decide not to file. The W-8 drives treaty claims, Chapter 3 vs. Chapter 4 status, and beneficial-owner type.<\/p>\nImportant Boxes\/Fields on Form 1042-S<\/h2>\n