What Form 1042 Is For

Form 1042 is the annual tax return that U.S. withholding agents must file to report taxes they've withheld from certain payments made to foreign persons. Think of it as a "summary report" that tells the IRS how much money you paid to foreign individuals or entities throughout the year and how much tax you withheld from those payments.

Who needs to file? Any person or entity that acts as a "withholding agent"—meaning you control, pay, or handle money that goes to foreign recipients. This includes individuals, corporations, partnerships, trusts, estates, government agencies, and even tax-exempt organizations. You might be paying foreign contractors, nonresident alien employees receiving specific types of income, foreign corporations, or foreign investors receiving U.S.-source income like dividends, interest, or royalties.

The form reports two main types of withholding: tax withheld under Chapter 3 (the traditional withholding on foreign persons' income) and the 2% excise tax under Section 5000C on certain federal procurement payments made to foreign contractors. If you're required to file Forms 1042-S (the individual recipient statements showing what each foreign person received), you must also file Form 1042—even if you filed those 1042-S forms electronically and even if no tax was actually withheld.

IRS.gov

When You’d Use Form 1042 (Late and Amended Returns)

Regular Filing

For the 2013 tax year, Form 1042 was due by March 17, 2014 (the normal deadline is March 15, but that fell on a Saturday in 2014). You mail it to the Ogden Service Center in Utah. If you made deposits throughout 2013, this form reconciles what you deposited with what you actually owed.

Extension

Need more time? File Form 7004 to get an automatic extension, giving you until September 15, 2014, to file. However, this extension is only for filing the paperwork—it doesn't extend your time to pay any taxes owed. You must still estimate and pay any balance due by the original March 17 deadline to avoid penalties.

Amended Returns

Discovered an error after filing? You can file an amended Form 1042 using the same year's form. Check the "Amended Return" box at the top, complete the entire form with corrected information, and attach a statement explaining what you're correcting (like "Mathematical error on May tax liability"). Remember: if you're also correcting individual Forms 1042-S, follow the separate instructions for amending those. One important note—don't file an amended return just to recover taxes you overwitheld in a prior year; there are specific overwithholding procedures for that situation.

Final Returns

If you won't have any withholding obligations in future years, check the "final return" box and enter the date you made your last payment to a foreign person. This tells the IRS not to expect returns from you going forward.

IRS.gov

Key Rules and Requirements for 2013

Several important rules governed Form 1042 filing in 2013:

Electronic Deposits Required

All withholding agents must use the Electronic Federal Tax Payment System (EFTPS) to deposit withheld taxes. Paper checks mailed to the IRS are not accepted and will result in penalties. To make deposits on time via EFTPS, you must initiate them by 8 p.m. Eastern time the day before the due date. There's also a same-day wire payment option for emergencies, but you need to arrange this with your bank ahead of time.

Deposit Frequency Rules

How often you deposit depends on how much you've withheld. If you accumulate $2,000 or more in undeposited taxes at the end of any quarter-monthly period (the 7th, 15th, 22nd, and last day of each month), you must deposit within 3 business days. If you have $200 to $1,999 at month's end, deposit within 15 days after the month ends. If you have less than $200 at year-end, you can pay it with your Form 1042 by March 17, 2014.

Forms 1042-S Connection

Every Form 1042 must be accompanied by Forms 1042-S, which detail payments to individual foreign recipients. If filing 250 or more Forms 1042-S, you must file them electronically. Paper filers use Form 1042-T as a transmittal sheet. Critically, the amounts on your Form 1042 must reconcile with the totals from all your Forms 1042-S, or you'll face IRS inquiries.

Qualified Intermediaries (QI)

If you're a QI, withholding foreign partnership (WP), or withholding foreign trust (WT), you must use your special QI-EIN, WP-EIN, or WT-EIN (not your regular EIN) and check the appropriate box on the form. QIs can take credits for taxes withheld by U.S. withholding agents on their behalf, but must attach supporting Forms 1042-S to prove it.

Partnership Withholding

If you're a U.S. partnership with foreign partners, special timing rules apply. You don't report withholding on a partner's distributive share until you actually distribute the money or furnish Schedule K-1—whichever comes first.

IRS.gov

Step-by-Step (High Level): How to Complete Form 1042

Step 1: Gather Your Information

Collect all your Forms 1042-S (or electronic filing records), your EFTPS deposit receipts, and records showing all payments made to foreign persons during 2013. You'll need your Employer Identification Number (or QI-EIN if applicable).

Step 2: Complete the Header

Enter your name, address, and EIN. Check the appropriate box indicating your status (QI/WP/WT or NQI/flow-through entity). If this is an amended return, check that box. If it's your final return, check that box and enter the date of your last payment.

Step 3: Fill in the Record of Federal Tax Liability (Lines 1-60)

This is the heart of the form—a month-by-month, quarter-monthly breakdown of your tax liability. For each period (ending on the 7th, 15th, 22nd, and last day of every month), enter the total tax liability you incurred during that period. This should match when you made payments, not necessarily when you deposited the taxes. Don't enter negative amounts; use brackets for any adjustments on specific lines like line 63b.

Step 4: Report Forms 1042-S Summary (Lines 61-62)

Line 61: Count how many Forms 1042-S you filed on paper and electronically. Line 62a: Total gross income paid (sum of all box 2 amounts on your 1042-S forms). Line 62b: Total taxes withheld or assumed (sum of box 9 minus box 10 from all 1042-S forms, plus any Forms 1000 tax assumed).

Step 5: Calculate Net Tax Liability (Lines 63a-63c)

Line 63a: Add all your monthly totals from lines 5, 10, 15, 20, 25, 30, 35, 40, 45, 50, 55, and 60—this is your total tax liability. Line 63b: Add any adjustments (like underwithheld corporate distribution taxes paid by March 17, 2014). Line 63c: Combine lines 63a and 63b for your total net tax liability.

Step 6: Report Payments and Credits (Lines 64-67)

Line 64: Total of all deposits you made through EFTPS. Line 65: Any overpayment from your 2012 Form 1042 that you applied to 2013. Line 66: Credits for taxes other withholding agents withheld on your behalf (attach supporting 1042-S forms). Line 67: Add lines 64-66 for total payments.

Step 7: Determine Balance Due or Overpayment (Lines 68-70)

Line 68: If line 63c exceeds line 67, you owe money. Line 69: If line 67 exceeds line 63c, you have an overpayment. Line 70: Check whether you want a refund or to apply the overpayment as a credit to 2014.

Step 8: Report Federal Procurement Excise Tax (Line 71)

If you made specified federal procurement payments to foreign contractors, multiply those payments by 2% and enter the result.

Step 9: Sign and Mail

Sign the form with your title, date it, and include a daytime phone number. If you want a third party (like your accountant) to discuss the return with the IRS, complete the Third Party Designee section. Mail everything to the Ogden Service Center by March 17, 2014.

IRS.gov

Common Mistakes and How to Avoid Them

Mistake 1: Missing the EFTPS Cutoff Time

Many filers initiate deposits on the due date itself, not realizing EFTPS requires initiation by 8 p.m. Eastern time the day before. Missing this deadline means your deposit is late, triggering penalties of 2% to 15% depending on how late it is. Solution: Set calendar reminders for the day before your deposit due date, or arrange same-day wire payment capability with your bank as a backup.

Mistake 2: Form 1042 Doesn't Reconcile with Forms 1042-S

The IRS computers automatically check whether your line 62 totals match the sum of all your Forms 1042-S. Discrepancies trigger automated notices and potential audits. Solution: Before filing, create a spreadsheet totaling all your 1042-S forms. Double-check that box 2 totals equal your line 62a and that box 9 minus box 10 totals equal your line 62b.

Mistake 3: Failing to File Electronically When Required

If you filed 250 or more Forms 1042-S on paper when you should have filed electronically, you face penalties of up to $100,000. Solution: Count your forms early in the year. If you'll cross the 250 threshold, set up electronic filing through the IRS Filing Information Returns Electronically (FIRE) system well before the deadline.

Mistake 4: Using the Wrong EIN

Qualified intermediaries must use their QI-EIN, not their regular business EIN. Using the wrong number causes the IRS to reject your return or creates compliance nightmares. Solution: Check your withholding agreement with the IRS to confirm which EIN to use. Keep this documentation with your tax files.

Mistake 5: Attempting to Adjust Overwithholding on an Amended Return

Many filers discover they overwithheld tax months after year-end and try to file an amended Form 1042 to recover it. But IRS rules say you can't use an amended return for this—the foreign recipient must file a U.S. tax return to claim the refund. Solution: If you discover overwithholding by March 15 of the following year, use the reimbursement or set-off procedures described in the instructions. After March 15, the recipient must handle it.

Mistake 6: Forgetting to Attach Supporting Documentation for Credits

Line 66 lets you claim credits for taxes other agents withheld on your behalf, but only if you attach the Forms 1042-S proving it. Missing documentation means denied credits. Solution: Create a "supporting documents" file when preparing your return. Attach all relevant 1042-S forms before mailing.

Mistake 7: Reporting Partnership Income in the Wrong Year

U.S. partnerships with foreign partners often report withholding in the year they earn income. The correct approach is to report it in the year you actually distribute the income or furnish Schedule K-1. Solution: Review the specific partnership timing rules in the instructions. Consider consulting a tax professional if you have significant foreign partner distributions.

IRS.gov

What Happens After You File

Processing Timeline

The IRS processes Form 1042 at its Ogden, Utah, service center. Processing typically takes 6-8 weeks for paper returns, though this varies by filing season workload. If you claimed an overpayment as a refund (line 69), expect your refund check or direct deposit within 8-12 weeks if there are no issues with your return.

Computer Matching

The IRS runs automated programs that match your Form 1042 totals against all the Forms 1042-S filed under your EIN. If the numbers don't reconcile, you'll receive a notice (typically a CP notice) asking you to explain the discrepancy or file corrections.

Balance Due Processing

If you owed additional tax (line 68) and paid it with your return or via EFTPS by the deadline, the IRS will assess any applicable penalties and interest for late payment during the year. You'll receive a bill for these amounts—you don't need to calculate them yourself.

Penalty and Interest Assessments

If you filed late or deposited late during the year, the IRS will calculate penalties: 5% per month (up to 25%) for late filing, 0.5% per month (up to 25%) for late payment, and daily compounding interest based on the federal short-term rate plus 3 percentage points. You'll receive a bill showing the breakdown.

Audit Selection

Some Form 1042 returns are selected for examination, particularly those with large refund claims, significant year-over-year changes, or patterns suggesting compliance issues. If selected, you'll receive a notice requesting documentation like deposit receipts, payment records, and copies of withholding agreements.

Amended Return Processing

If you filed an amended Form 1042, the IRS reviews it manually rather than through automated processing. This takes longer—typically 12-16 weeks. They'll compare your original and amended returns, verify your explanation, and send you a notice accepting the changes or requesting more information.

Recipient Inquiries

Foreign persons who received Forms 1042-S from you may contact the IRS with questions or dispute withholding amounts. The IRS may reach out to you to verify the information you reported. Keeping thorough records for at least four years after filing protects you in these situations.

IRS.gov

FAQs

Q1: I only paid one foreign contractor $5,000 with no withholding. Do I still need to file Form 1042?

Yes, if you're required to file a Form 1042-S for that payment, you must also file Form 1042 even if no tax was withheld. Form 1042 is the transmittal/summary return that accompanies Forms 1042-S. However, certain payments may be exempt from reporting—check the Form 1042-S instructions to see if your specific payment requires reporting.

Q2: What's the difference between Form 1042 and Forms 941/945?

Form 941 reports income tax withholding and payroll taxes on wages paid to nonresident alien employees. Form 945 reports income tax withholding on pensions, annuities, and certain other deferred income. Form 1042 reports withholding on U.S.-source income that's not wages, pensions subject to section 3405, or household employment—it covers things like interest, dividends, royalties, and independent contractor payments to foreign persons.

Q3: Can I file Form 1042 electronically?

For 2013, Form 1042 itself must be filed on paper and mailed to Ogden, Utah. However, Forms 1042-S can (and in many cases must) be filed electronically through the IRS FIRE system. The paper Form 1042 acts as the transmittal whether your 1042-S forms were filed electronically or on paper.

Q4: I discovered I overwithheld $1,000 on a payment in July, but it's now January. What should I do?

If it's before March 15, 2014, you can use the reimbursement procedure: pay back the foreign person from your own funds and reduce your deposits for the remainder of the year by the amount you repaid. Report the reduced liability on lines 1-60 for the period when you made the repayment. If it's after March 15, 2014, you cannot adjust Form 1042—the foreign recipient must file a U.S. tax return (Form 1040NR or 1120-F) to claim a refund.

Q5: Do I need separate Forms 1042 for different types of income or different branches of my company?

Generally, no—file one consolidated Form 1042 combining all recipient information regardless of income types, branches, or divisions. The exception: if you act in multiple capacities (for example, as both a QI for some accounts and an NQI for others), file a separate Form 1042 for each capacity.

Q6: What if I can't pay the balance due on line 68 by March 17, 2014?

File your Form 1042 on time regardless, as late-filing penalties (5% per month) are steeper than late-payment penalties (0.5% per month). Include whatever payment you can afford. The IRS will bill you for the remaining balance plus interest and penalties. You may be able to set up an installment agreement by calling the International Section at 267-941-1000.

Q7: How long should I keep my Form 1042 records?

The IRS recommends keeping all Form 1042 returns, supporting Forms 1042-S, deposit receipts, and payment records for at least four years after the due date or filing date, whichever is later. If you claimed credits or refunds, or if there's any possibility of audit, keep records for six years. This protects you if foreign recipients dispute withholding or if the IRS examines your returns.

Additional Resources

• IRS Publication 515, "Withholding of Tax on Nonresident Aliens and Foreign Entities"
• IRS Form 1042-S Instructions (2013): IRS.gov
• IRS EFTPS Enrollment: www.eftps.gov
• International Section Help Line: 267-941-1000 (6 a.m.-11 p.m. ET)

This guide is based on official 2013 IRS Form 1042 instructions and publications available at IRS.gov. Tax situations vary, and this guide is for educational purposes only. Consult a qualified tax professional for advice specific to your situation.