Form 1042-S shows different types of income and payments made to foreign persons. The completion of this form ensures IRS compliance and accurate reporting of foreign-earned income. It provides information for both recipients and the IRS, as it helps establish accurate tax liability and determine potential tax treaty benefits, if applicable.

The form includes details such as the unique form identifier, recipient’s name, address, taxpayer identification number (TIN), and the amount of income either subject to or not to withholding. Form 1042-S also plays a crucial role for withholding agents, such as employers, educational institutions, and financial institutions, as it allows them to fulfill their responsibilities in reporting income paid to foreign persons, withholding the appropriate amount of tax, and complying with the complex requirements of the U.S. tax law.

Key Takeaways

• Form 1042-S is used to report the payments made to each foreign person subject to reporting on 1042-S, and a copy of this form must be issued to each recipient. 
• This form must be filed even if payments made to foreign persons are not subject to withholding. 
• This form is due by March 15, and you can request a 30-day extension by filing Form 8809.
• IRS Form 1042-S can be filed either on paper or electronically. Electronic filing of Form 1042-S is required if there are 250 or more forms from the withholding agent.
• A unique identifying number must be assigned to each original Form 1042‐S filed for the current year.

What is Form 1042-S used for?

Form 1042-S: Foreign Person’s U.S. Source Income Subject to Withholding reports income under amounts subject to reporting on 1042-S and amounts withheld under Chapter 3 or Chapter 4. It is also used to report Specified Federal procurement payments paid to foreign persons subject to withholding under Section 5000C and Distributions of effectively connected income by a publicly traded partnership or nominee.

Amounts subject to reporting on Form 1042-S are as follows, but not limited to interest, rents, royalties, compensation for independent personal services performed in the United States, compensation for dependent personal services performed in the United States (only if the beneficial owner is claiming treaty benefits), annuities, pension distributions, gambling winnings, cancellation of indebtedness, and effectively connected income (ECI).

Who has to file Form 1042-S?

Every withholding agent must file Form 1042-S to report amounts paid in the preceding calendar year under Amounts Subject to Reporting on Form 1042-S. However, if the withholding agent is an individual and is not conducting the payment as part of their trade or business, they are not required to report a payment on Form 1042-S. Please note that separate Form 1042-S is required for each recipient, even if you withhold tax or not, for each type of income paid to the same recipient and each tax rate on a specific type of income paid to the same recipient in case it is withheld at more than one tax rate.

Due date of Form 1042-S

It is due by March 15, whether filed on paper or electronically. If additional time is needed to file Form 1042-S, you can file Form 8809, Application for Extension of Time to File Information Returns, and you will get an automatic 30-day extension. If you need more time, you can submit a second 8809 before the initial extended due date ends. 

Penalties on Form 1042-S

Late filing of the correct Form 1042-S will depend on the number of days and typically ranges from $60 to $310 per form, with a maximum penalty that ranges from $630,500 to $3,783,000 per year ($220,500 to $1,261,000 for small businesses). For intentional disregard of filing correct information on Form 1042-S, the penalty increased to the greater of $630, or 10% of the total amount of items required to be reported, with no maximum penalty. 

If you fail to furnish the correct form 1042-S to the recipient and can’t show a reasonable cause, a penalty of up to $310 may be imposed for each failure to furnish form 1042-S when due. The maximum penalty is $3,783,000 for all failures to furnish correct recipient statements during a calendar year.

Unique Form Identifier

A unique identifying number must be assigned to each original Form 1042‐S filed for the current year. This is used to identify which information return is being corrected or amended when multiple 1042-S are filed for the same recipient. It cannot be the US or Foreign Tax Identification Number; it must be numeric and have exactly ten digits. 

Difference Between Form 1042-S and Form 1099

A 1099 form reports income paid to US persons, such as rents, royalties, interest, dividends, and services performed by someone who is not an employee, while Form 1042-S reports income paid to foreign persons.