Form 1042, titled “Annual Withholding Tax Return for U.S. Source Income of Foreign Persons,” is required for reporting federal tax withheld on income paid to foreign individuals or entities. This includes interest, dividends, rents, royalties made to nonresident aliens, foreign partnerships, corporations, estates, and trusts. The form helps the IRS verify compliance with tax withholding and reporting obligations under the Internal Revenue Code.

Any withholding agent—including businesses, universities, financial institutions, or government agencies—that controls, receives, or pays U.S. source income to a foreign person must generally file Form 1042. Even when no tax is withheld, filing may be necessary if reporting is required under Chapter 3 or Chapter 4 (FATCA). For the 2022 tax year, the IRS introduced key updates, including a new option to file electronically through the Modernized e-File (MeF) system and the requirement to attach Schedule Q (Form 1042) for Qualified Derivatives Dealers (QDDs).

Form 1042 for the tax year 2022 is due March 15, 2023, whether submitted electronically or by mail. Failing to file or pay on time can result in penalties for late filing, late payment, or willful neglect. Based on official sources from IRS.gov and Publication 515, this guide provides clear Form 1042 2022 instructions to help withholding agents file accurately and avoid compliance issues.

Understanding IRS Form 1042

Form 1042 is the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. It reports federal tax withheld on certain types of U.S.-source income paid to foreign individuals, including nonresident aliens, foreign partnerships, corporations, estates, and trusts. The form ensures that the rules in Chapters 3 and 4 of the Internal Revenue Code, which deal with withholding on foreign income and the reporting requirements of the Foreign Account Tax Compliance Act (FATCA), are followed.

Purpose and Coverage

• Tax Reporting Obligation: Withholding agents must use Form 1042 to report U.S. tax withheld on payments to foreign entities and individuals. These payments often include interest, dividends, rents, royalties, salaries, and scholarships considered U.S.-source income.
  
  
• Income Subject to Reporting: The form covers income that is either fixed, determinable, annual, or periodical (FDAP), as well as income that is effectively connected with a U.S. trade or business.
  
  
• Coordination with Other Forms:
  
  
  
  • Form 1042-S reports each recipient’s specific payment details.
    
    
  • Form 1042-T is a transmittal form for submitting paper copies of Forms 1042-S.
    
    
  • Totals on all Forms 1042-S must reconcile with the information reported on Form 1042.

Tax Liability vs. Tax Deposits

Understanding the difference between tax liability and tax deposits is essential when filing Form 1042. The form reports your total tax liability, or the amount owed for payments made to foreign persons during a specific period, not the deposits already sent to the IRS. Deposits must be made separately through the Electronic Federal Tax Payment System (EFTPS) and should match the amounts reported on your return.

Tax Liability

• Meaning: The amount of federal tax owed for payments made to foreign persons.
• Reported On: Listed on Form 1042, Lines 1–60.
• Purpose: Shows the tax due for each payment period.
• Common Mistake: Reporting deposits instead of liabilities.

Tax Deposits

• Meaning: Payments sent to the IRS through the EFTPS system.
• Reported On: Recorded in IRS deposit records (not on Form 1042 lines).
• Purpose: Confirms that withheld taxes were actually paid.
• Common Mistake: Depositing late or for the wrong amount.

Keeping these figures aligned helps avoid mismatches, penalties, and processing delays. Always verify that your EFTPS deposits correspond precisely to the liabilities reported on Form 1042 for the same tax year. For complete filing details, refer to the official IRS Instructions for Form 1042 (2022).

Who Must File Form 1042

Any withholding agent that controls, receives, or pays U.S.-source income to a foreign person is generally required to file Form 1042. This includes individuals, corporations, partnerships, trusts, estates, government agencies, and nonprofit organizations. The form covers various payments, such as interest, dividends, rents, royalties, salaries, and scholarships, taxable to foreign recipients.

You must file Form 1042 even if no tax was withheld, as long as you are required to report the payment under Chapter 3 or Chapter 4 of the Internal Revenue Code. This applies to entities like Qualified Intermediaries (QIs), Withholding Foreign Partnerships (WPs), Withholding Foreign Trusts (WTs), and Participating Foreign Financial Institutions (FFIs) that process or manage payments subject to U.S. withholding.

Typical filers include:

• Banks and financial institutions pay interest to foreign account holders
  
  
• Corporations, universities, or nonprofits making payments to nonresident contractors or scholars
  
  
• U.S. agents and intermediaries managing payments on behalf of foreign entities

However, you may not need to file if the income is exempt under a tax treaty or is not considered U.S. source income. Always confirm filing obligations based on your specific role and payment type.

What’s New for the 2022 Tax Year

The 2022 tax year brought several key updates to Form 1042, making it easier for withholding agents to file and meet IRS reporting standards. These changes focus on improving efficiency, clarity, and compliance with both Chapter 3 and Chapter 4 withholding requirements.

Key updates include:

• Electronic filing (e-file) availability: Form 1042 can now be filed electronically through the Modernized e-File (MeF) system. This option reduces errors, speeds up processing, and provides instant confirmation of receipt.
  
  
• New Schedule Q requirement: Qualified Derivatives Dealers (QDDs) must now attach Schedule Q (Form 1042) instead of submitting a separate written statement. Each QDD branch must file a Schedule Q, even if no tax is owed.
  
  
• Section 871(m) transition relief: Under Notice 2022-37, the IRS extended the transition period for rules affecting dividend equivalent payments in derivative transactions.
  
  
• Proposed regulations for burden reduction: Withholding agents may continue to rely on proposed regulations issued in December 2018, which simplify FATCA and Chapter 3 reporting obligations.

These revisions are designed to streamline filing, reduce compliance risk, and ensure accurate reporting for all entities subject to Form 1042 2022 instructions.

Step-by-Step Instructions for Filing Form 1042

The steps below guide withholding agents through the instructions on Form 1042-S 2022. Follow them to confirm your obligation, prepare accurate records, complete each section, and attach the proper schedules.

Step 1 – Determine Your Filing Requirement

Confirm that you are a withholding agent that controls, receives, or pays U.S. source income to a foreign person. Filing is generally required even when no tax was withheld if reporting applies under Chapter 3 or Chapter 4 (FATCA).

• Review your payments to foreign persons and identify which amounts are FDAP or effectively connected income.
  
  
• Determine whether you act in an exceptional capacity, such as QI, WP, WT, or Participating FFI, because separate obligations may apply.
  
  
• Verify whether any treaty benefits or exemptions changed your withholding, while noting that reporting can still be required.

Step 2 – Gather Required Information

Collect all identifiers and records before you fill out the return.

• Confirm your EIN or specialized numbers (QI-EIN, WP-EIN, or WT-EIN) and your legal name and address.
  
  
• Identify your Chapter 3 and Chapter 4 status codes that describe your filing capacity.
  
  
• Assemble all Forms 1042-S issued or to be issued, along with recipient totals and tax withheld.
  
  
• Prepare payment records and your record of tax liability by quarter-monthly periods for the entire year.
  
  
• Compile deposit confirmations and adjustments so your totals reconcile across the return.

Step 3 – Complete Form 1042

Enter information carefully and keep liability and deposits distinct.

• Section 1: Record of Federal Tax Liability (Lines 1–60): Report tax liability for when income was paid. Do not report deposit amounts here. Use the proper quarter-monthly period ending dates.
  
  
• Section 2: Tax Liability Summary: Report Chapter 3 tax on line 64b and Chapter 4 tax on line 64c. Ensure the sum of monthly totals equals lines 64b, 64c, and 64d.
  
  
• Section 3: Reconciliation of Payments: Reconcile total amounts paid and tax withheld with the totals on all Forms 1042-S. Confirm that the number of Forms 1042-S reported is accurate.
  
  
• Section 4: QDD Information: Complete this section only if you are a QI acting as a QDD and made payments in that capacity.

Avoid common errors by reporting liability in Section 1, not deposits; using the correct status codes; and avoiding negative numbers on lines 1–60.

Step 4 – Attach Required Schedules and Coordinate Forms

Attach schedules and ensure the return ties to information returns.

• Attach Schedule Q (Form 1042) for each QDD branch, even if no tax liability exists.
  
  
• File Form 1042-S for each recipient with reportable amounts and ensure totals reconcile with Form 1042.
  
  
• Use Form 1042-T as the transmittal if you file paper Forms 1042-S.
  
  
• Verify that EFTPS deposits were made on time and that deposit totals match the liabilities reported for the year.

Following these steps, you create a consistent filing that aligns your tax liability, deposits, and recipient reporting across Form 1042, Form 1042-S, and any required schedules.

Filing Methods and Deadlines

You can submit Form 1042 electronically or by mail. Choose the best method for your workflow, but keep complete records either way. Accurate, timely filing helps you avoid penalties and supports clean reconciliation with Forms 1042-S.

Electronic filing (e-File)

• You may file through the IRS Modernized e-File (MeF) system.
  
  
• Use an authorized provider and keep all submission acknowledgments with your records.
  
  
• Retain a full copy of the return and attachments for audit support.

Paper filing

• If you do not e-file, mail Form 1042 to: Internal Revenue Service, P.O. Box 409101, Ogden, UT 84409.
  
  
• Use a trackable mailing service and include all required schedules with a signed return.
  
  
• Keep proof of mailing with your year-end documentation.

Filing deadlines and extensions

• For the 2022 tax year, the filing due date was March 15, 2023, for both e-file and paper.
  
  
• You may request an extension with Form 7004 before the due date; it only extends the time to file.
  
  
• An extension does not extend time to pay; make deposits on schedule through EFTPS.
  
  
• Deposit timing rules rely on business days, so account for weekends and holidays.
  
  
• Reconcile the filed return with all Forms 1042-S totals and keep acknowledgments or mailing receipts.

This mix of e-file and paper options gives flexibility, while a disciplined records process supports accurate reporting and a smooth year-end close.

Payment and Deposit Requirements

Withholding agents must make all Form 1042 deposits through the Electronic Federal Tax Payment System (EFTPS). Deposits must match the tax liability reported by quarter-monthly period on Lines 1–60 and be designated to the correct tax year. Keep EFTPS confirmations with your records for reconciliation and audit support.

Deposit timing rules:

• $2,000+ → deposit within three (3) business days after the quarter-monthly period ends.
  
  
• $200–$1,999 → deposit within 15 days after the month ends.
  
  
• Under $200 → you may pay with the return by the filing due date.

If you miss the EFTPS cutoff (generally the evening before the due date), you may use a same-day wire through the Federal Tax Collection Service. Confirm your bank’s deadlines, setup steps, and any fees. Late or insufficient deposits can trigger penalties and interest, and failure to use EFTPS when required may also result in fines.

When the portion of a payment subject to withholding is uncertain, you may use escrow procedures. In practice, many filers withhold 30% on the full payment and hold the funds in escrow while they determine the correct taxable portion. Maintain documentation supporting your calculation, update the allocation once facts are clear, and ensure deposits ultimately match reported liability and Forms 1042-S totals.

Zero-Activity and Dormant Entity Filings

You must file Form 1042 even when no tax was withheld if you had U.S.-source payments to foreign recipients that are reportable under Chapter 3 or Chapter 4, or if you issued Forms 1042-S for information reporting only. Filing is still required so the IRS can reconcile payments, status codes, and recipient counts.

Zero-activity return

• Confirm your EIN and filer status, then complete the header information accurately.
  
  
• Enter zeros on Lines 1–60 to show no tax liability for each quarter-monthly period.
  
  
• Complete Section 2 to reconcile totals and the count of Forms 1042-S, even if no Chapter 4 withholding occurred.
  
  
• Include brief statements explaining why no withholding applied, if helpful.

Dormant entities

• If you were inactive for the year but previously acted as a withholding agent, file a zero return when required and mark any final-return indicators your situation needs.
  
  
• Keep prior-year records available in case the IRS requests verification.

Documentation
Maintain withholding certificates (Form W-8), treaty claims, exemption support, payment logs, and deposit confirmations. Clear records help establish why no withholding was due and support reasonable cause if you must explain timing or reconciliation differences.

Chapter 3 vs. Chapter 4 (FATCA) – Key Differences

Chapters 3 and 4 address different withholding regimes. Chapter 3 covers source income subject to U.S. withholding when paid to foreign recipients. Chapter 4 (FATCA) focuses on reporting and withholding information tied to foreign financial account compliance. Both can affect taxpayers, but the triggering rules differ.

Chapter 3 Withholding

• Purpose: Requires withholding on certain types of income paid to foreign persons.
• Focus: The nature of the income.
• Primary Payees: Nonresident alien individuals, foreign corporations, and foreign estates.
• Typical Income: Interest, dividends, royalties, wages, and other FDAP (Fixed, Determinable, Annual, Periodical) items.
• Rates: Generally 30%, unless reduced by an applicable tax treaty.
• Documentation: Forms W-8 are used to determine gross income items and whether net income applies.
• Reporting: Report payments and withholding on Form 1042 and Forms 1042-S.

Chapter 4 (FATCA) Withholding

• Purpose: Enforces reporting on foreign financial assets and foreign entities.
• Focus: The status of the payee or intermediary.
• Primary Payees: Foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs).
• Typical Income: Withholdable payments, such as U.S.-source interest or dividends.
• Rates: Generally 30% on withholdable payments to noncompliant entities.
• Documentation: Forms W-8 with FATCA status included; a GIIN (Global Intermediary Identification Number) may also be required.
• Reporting: Withholdable payments and corresponding withholding must be reported, and totals included in the annual return.

Apply Chapter 3 when the example payment is a U.S.-source dividend or wages to a nonresident. Apply Chapter 4 when a foreign intermediary lacks a valid FATCA status. Do not apply both withholdings to the same payment. Identify the applicable rules for the transaction and ensure the amounts paid are reported accurately. 

Compute withholding on the applicable base, often gross income rather than net income. Reconcile totals on Form 1042 and the related Forms 1042-S to ensure accurate income tax reporting.

Recordkeeping and Compliance

Maintain complete records for at least three years after the return's due date or the date filed, whichever is later. Longer retention is prudent if you issue many payee statements or amended returns or anticipate IRS requests for additional information. Good records support withholding decisions, reconcile filings, and reduce audit risk.

Keep these documents and workpapers:

• Forms W-8 and status files. Retain current certificates and any analyses used to determine the payee’s chapter status and treaty eligibility.
  
  
• Payment and liability logs: Track payment dates, distributions, grants, royalties, interest, and other U.S.-source items, plus quarter-monthly liability entries.
  
  
• Deposit proof: Save EFTPS acknowledgments that tie each deposit to the reported period and the full amount of liability.
  
  
• Reconciliation binders: Keep Forms 1042, 1042-S, and 1042-T, recipient counts, and workpapers that report amounts paid and withheld.
  
  
• Correspondence and support: File memos, property payment details, expense allocations, and invoices that explain withholding bases and related expenses.

Penalties and controls

• Missing or inaccurate records can lead to penalties for late filing, late payment, incorrect payee statements, and interest under federal taxation rules.
  
  
• You may also lose the ability to credit prior deposits appropriately if the periods do not match.
  
  
• Establish a close process: verify totals, tie deposits to liabilities, and review signatures before submitting the annual return.

Additional IRS Resources

• Form 1042 (About/Download): This page provides the current Form 1042, prior-year versions, and a brief overview to confirm which version you should file.
  
  
• Instructions for Form 1042-S: This resource offers line-by-line guidance, reconciliation rules, recipient copy requirements, and filing specifications for information returns.
  
  
• Publication 515: This publication explains the withholding rules in Chapters 3 and 4, documentation standards, treaty benefits, common rates, and practical examples.
  
  
• Publication 4163: This guide details Modernized e-File (MeF) procedures, technical standards, acknowledgments, and error resolution steps for business returns.
  
  
• IRS International (Form 1042 questions): This phone line, 267-941-1000, supports questions about Form 1042, including filing, status codes, and reconciliation topics.
  
  
• Business & Specialty Tax Line: This line, 800-829-4933, assists with EIN applications, business accounts, and general filing inquiries.
  
  
• TRS Access (TTY/TDD): Telecommunications Relay Service users can dial 711 to connect to any IRS phone number through an operator.
  
  
• Local IRS Office Assistance: The IRS provides a locator tool and appointment system that help you find nearby offices, available services, and current hours.

Frequently Asked Questions (FAQs)

Who is a withholding agent, and who must file the annual withholding tax return?

A withholding agent is any U.S. or foreign payer that controls, receives, or disburses U.S.-source payments to non-U.S. recipients. Covered foreign individuals include nonresident individuals, corporations, partnerships, trusts, and estates. If you made reportable payments during the year, you must generally file Form 1042 so the IRS can reconcile payees, amounts, and withholding, even when no tax was withheld.

What counts as source income for Form 1042?

Source income includes U.S.-source interest, dividends, royalties, rents, and services performed in the United States. These payments represent the income of foreign persons when paid to non-U.S. recipients. In practical terms, you report U.S.-source payments that are the source income of foreign recipients and determine whether withholding and information reporting apply under Chapters 3 and 4.

What is the due date for the tax return?

For the 2022 tax year, electronic and paper filings were due on March 15, 2023. You may request an extension with Form 7004 before the deadline, which extends the time to file only. It does not extend the time to pay, so deposit schedules still apply. Keep acknowledgments or mailing receipts and ensure totals reconcile with recipient statements.

Do I need to file if there was no withholding on payments to foreign entities?

You may still need to file if payments were reportable under Chapter 3 or Chapter 4, or if you issued Forms 1042-S. A zero-activity return typically shows zero liability on Lines 1–60, completes Section 2 reconciliation, and explains why withholding did not apply. Maintain certificates, calculations, and payment records that support your determinations.

How do I submit the tax return for U.S. withholding?

You can e-file through the IRS Modernized e-File system or mail a paper return to the IRS processing address. Use an authorized provider if you e-file, retain the acceptance notice, and keep a complete copy of the submitted return and attachments. If you mail the return, use a trackable method and keep proof of timely mailing with your year-end records.