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Form 1042-S, Foreign Person’s US Source Income Subject to Withholding, is a federal tax form that reports income paid to foreign persons by a US-based individual or entity.
All US source income paid to foreign nationals is potentially subject to withholding (i.e., federal income tax). Form 1042-S is used to report any amounts paid to a foreign person, as well as any amounts withheld under Chapter 3 or Chapter 4 of the Internal Revenue Code and any amounts withheld that were later repaid to the payee.
Form 1042-S must be filed even if tax wasn’t withheld due to a tax treaty or exemption.
Form 1042-S ensures that the Internal Revenue Service (IRS) has a record of money sent outside of the US. A copy must be filed with the IRS and also provided to the payee.
Examples of situations where a Form 1042-S may be filed include where a US-based business hires foreign freelancers to complete various projects or an American university pays an international student a stipend.
Who Files a Form 1042-S?
If you are a withholding agent that paid any amount subject to withholding to a foreign person, you must file a Form 1042-S.
A withholding agent is anyone responsible for withholding tax payments on US source income paid to foreign persons. Withholding agents include individuals, businesses, or institutions such as a university.
Foreign persons include non-resident aliens, foreign corporations and partnerships, foreign trusts, and foreign estates.
You must file separate Forms 1042-S for:
- each payee, regardless of whether tax was withheld
- each type of income paid to the same payee
- and each tax rate of a specific type of income paid to the same payee.
What Income Is Reported on Form 1042-S?
Form 1042-S must report any US source income paid to foreign persons other than taxable wages.
- dividends and other corporate distributions paid by American corporations
- annuities
- real estate income
- pension income
- royalties
- scholarship or fellowship income
- interest on deposits
- compensation for personal services performed in the US
- insurance premiums
- wages exempt from federal and state withholding tax under a tax treaty.
Difference Between Form 1042, Form 1042-S, and Form 1042-T
These forms all relate to US source income paid to foreign persons.
Form 1042, Annual Withholding Tax Return for US Source Income of Foreign Persons, is used to determine the amount of tax to withhold on US source income paid to a foreign person.
Form 1042-S reports any amounts of US source income paid to a foreign person.
Form 1042-T, Annual Summary and Transmittal of Forms 1042-S, is used to send paper Forms 1042-S to the IRS.
What Is the Deadline for Filing Form 1042-S?
Form 1042-S must be filed by March 15—or the next business day if the 15th is a weekend or public holiday—for the preceding tax year. For example, you must file any Forms 1042-S by March 15, 2023, for any amounts you paid to a foreign person in the 2022 tax year.
What Happens if You Don’t File Form 1042-S?
If you’re required to file Form 1042-S and fail to do so by March 15, you may be fined unless you can show reasonable cause as to why you failed to file in time. If you cannot prove reasonable cause, you may be considered as failing to file in time due to wilful neglect. The amount that you’re fined typically increases the later you file.
If needed, you can request an extension of time from the IRS in certain circumstances.
Conclusion
Form 1042-S is used to report US source income paid to foreign persons. It must be filed by the person, business, or institution that made the payment. Income that must be reported includes compensation for personal services performed in the US, dividends paid by US companies, scholarships, and interest on deposits. Form 1042-S must be filed by March 15 each year for the preceding tax year.
Tax regulations are complex and constantly changing. It’s important to seek advice from a qualified tax professional about your obligations in relation to Form 1042-S.
