Returns Required

Every withholding agent, whether U.S. or foreign, must file Forms 1042 and 1042-S to report payments of amounts subject to NRA withholding unless an exception applies. Do not use Forms 1042 and 1042-S to report tax withheld on the following:

• Wages or salaries subject to graduated income tax withholding (see Wages Paid to Employees--Graduated Withholding, earlier under Pay for Personal Services Performed),
• Any portion of a U.S. or foreign partnership's effectively connected taxable income allocable to a foreign partner (see Partnership Withholding on Effectively Connected Income, later),
• Dispositions of U.S. real property interests by foreign persons (see U.S. Real Property Interest, later),
• Pensions, annuities, and certain other deferred income reported on Form 945, and
• Income, social security, and Medicare taxes withheld on wages paid to a household employee reported on Schedule H (Form 1040).

The Forms 1042 and 1042-S must be filed by March 15 of the year following the calendar year in which the income subject to reporting was paid. If March 15 falls on a Saturday, Sunday, or legal holiday, the due date is the next business day.

Form 1042. Every U.S. and foreign withholding agent that is required to file a Form 1042-S must also file an annual return on Form 1042. You must file Form 1042 even though you were not required to withhold any income tax.

You must file Form 1042 with the:
Internal Revenue Service Center
Philadelphia, PA 19255.

Form 1042-S. Every U.S. and foreign withholding agent must file a Form 1042-S for amounts subject to NRA withholding unless an exception applies. The form can be filed magnetically, electronically, or on paper. A separate Form 1042-S is required for each recipient of income to whom you made payments during the preceding calendar year regardless of whether you withheld or were required to withhold tax. You must use a separate Form 1042-S for each type of income that you paid to the same recipient. See Statements to recipients, later.

You must furnish a Form 1042-S for each recipient even if you did not withhold tax because you repaid the tax withheld to the recipient or because the income payment was exempt from tax under the Internal Revenue Code or under a U.S. income tax treaty.

Joint owners. If all the owners provide documentation that permits them to receive the same reduced rate of withholding (for example, under an income tax treaty) you should apply the reduced rate of withholding. You are required, however, to report the payment on one Form 1042-S to the person whose status you rely upon to determine the withholding rate. If, however, any one of the owners requests its own Form 1042-S, you must furnish Form 1042-S to the person who requests it. If more than one Form 1042-S is issued for a single payment, the total amount paid and tax withheld reported on all Forms 1042-S cannot exceed the total amounts paid to joint owners.

Form 1042-T. If Form 1042-S is filed on paper, it must be filed with Form 1042-T. You may need to file more than one Form 1042-T. See the instructions for that form for more information.

Magnetic media reporting. Withholding agents or their agents generally must use magnetic or electronic media to file 250 or more Forms 1042-S with the IRS. You are encouraged to file electronically or magnetically even if you are not required to.

A completed Form 4419, Application for Filing Information Returns Magnetically/ Electronically, should be filed with the Martinsburg Computing Center at least 30 days before the due date of the return. Returns may not be filed magnetically or electronically until the application has been approved by the IRS.

For information and instructions on filing Forms 1042-S on magnetic media, get Publication 1187, Specifications for Filing Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding Magnetically/ Electronically.

Deposit interest paid to alien individuals who are residents of Canada. If you pay deposit interest of $10 or more to a nonresident alien individual who resides in Canada and is not a U.S. citizen, you may have to report it on Form 1042-S. This reporting requirement generally applies to interest that a) is on a deposit maintained at a bank's office in the United States, and b) is not effectively connected with a trade or business within the United States. However, this reporting requirement does not apply to interest paid on certain bearer certificates of deposit as described in section 1.6049-8(b) of the regulations if you pay that interest outside the United States.

How to report. Although you only have to report on Form 1042-S the deposit interest paid to residents of Canada who are not U.S. citizens, you can comply by reporting payments to all foreign persons receiving bank deposit interest, if that way is easier for you.

Determining residency. You determine whether a payee is a Canadian resident based on the permanent residence address required to be provided on the Form W-8BEN. If you have actual knowledge that the payee is a U.S. person, you must report the payment on Form 1099-INT.

Statements to recipients. You must furnish a statement to each recipient for whom you are filing a Form 1042-S (or magnetic media report) by the due date for filing Forms 1042 and 1042-S with the IRS. You may use a copy of the official Form 1042-S for this purpose. Or, you may provide recipients with the information together with, or on, other (commercial) statements or notices. These statements must clearly identify the type of income (as described on the official form), the amount of tax withheld, the withholding rate (including 0% if exempt), and the country involved. You may include more than one type of income on the copies of the Form 1042-S that you provide to the recipient of the income. You may not, however, include more than one income line on the copy of the form filed with the IRS.

You must get prior annual approval to use a substitute Form 1042-S unless it meets the requirements listed in Publication 1167, Substitute Printed, Computer-Prepared and Computer-Generated Tax Forms and Schedules. Get Publication 1167 for more information.

Extension of time to file. You may request an extension of time to file Form 1042 by filing Form 2758, Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns. You may request an extension of time to file Form 1042-S by filing Form 8809, Request for Extension of Time to File Information Returns. You should send Forms 2758 and 8809 far enough in advance of the due date of Forms 1042 and 1042-S to allow the IRS time to consider your application and to reply before the due date of the return.

Penalties. The penalty for not filing Form 1042 when due (including extensions) is usually 5% of the unpaid tax for each month or part of a month the return is late, but not more than 25% of the unpaid tax.

A penalty may be imposed for failure to file Form 1042-S when due (including extensions) or for failure to provide complete and correct information. The amount of the penalty depends on when you file a correct Form 1042-S. The penalty for each Form 1042-S is:

• $15 if you file a correct form within 30 days, with a maximum penalty of $75,000 per year ($25,000 for a small business),
• $30 if you file after 30 days but before August 2, with a maximum penalty of $150,000 ($50,000 for a small business), or
• $50 if you file after August 1 or do not file a correct form, with a maximum penalty of $250,000 per year ($100,000 for a small business).

A small business is a business that has average annual gross receipts of not more than $5 million for the most recent 3 tax years (or for the period of its existence, if shorter) ending before the calendar year in which the Forms 1042-S are due.

If you fail to provide a complete and correct statement to each recipient, a penalty of $50 for each failure may be imposed. The maximum penalty is $100,000 per year. If you intentionally disregard the requirement to report correct information, the penalty for each Form 1042-S (or statement to recipient) is the greater of $100 or 10% of the total amount of the items that must be reported, with no maximum penalty.

Failure to file on magnetic media. If you are required to file on magnetic media but you fail to do so, and you do not have an approved waiver, you may be subject to a penalty of $50 per form for failure to file Form 1042-S on magnetic media unless you show reasonable cause. The penalty applies separately to original and corrected returns.

Previous| First | Next

Publication Index | IRS-Forms Main | Home