What Form 1042 Is For
Form 1042 (2019) is the annual withholding tax return used by U.S. withholding agents to report payments made to foreign persons. It summarizes all income subject to tax withholding and ensures compliance with IRS tax forms and regulations.
The form covers withholdable payments such as interest, dividends, personal services, and other source income paid to nonresident aliens, foreign corporations, foreign partnerships, and foreign trusts during the calendar year. It must be filed with the Internal Revenue Service for the 2019 tax year, even if no tax was withheld.
When You’d Use Form 1042 (2019)
Withholding agents file Form 1042 when they pay source income subject to U.S. income tax to foreign persons or entities. The due date for the 2019 annual summary was March 16, 2020, or the next business day if a legal holiday applied. Those unable to file on time could request an extension using Form 7004. If the return was not filed by the due date, penalties could apply unless the filer showed reasonable cause or absence of willful neglect. Late payments of tax withheld also accrued interest until paid.
Key Rules or Details for 2019
- Who must file Form 1042: Every withholding agent, including financial institutions, foreign financial institutions, foreign partnerships, foreign corporations, and foreign trusts that made withholdable payments, must file the form for tax purposes.
- Income subject to withholding: The form reports certain types of income paid to foreign persons, including interest, dividends, royalties, rents, scholarships, fellowship grants, and personal services income.
- Reporting and payment rules: Withholding agents must report payments, income codes, and tax withheld for the entire calendar year and deposit taxes using the Electronic Federal Tax Payment System.
- Electronic filing requirement: Large withholding agents and certain taxpayers are required to file electronically. Paper forms may be used by smaller entities if permitted by the IRS.
- Coordination with other forms: Form 1042 summarizes all income reported on multiple Forms 1042-S and ensures totals for gross amount, income paid, and tax withheld match exactly.
- Foreign treaty benefits: Payments eligible for reduced rates under a tax treaty must still be reported, and the beneficial owner must provide documentation claiming treaty benefits.
- Effectively connected income: Foreign partnerships, foreign branches, and other flow-through entities must distinguish between effectively connected income and income not associated with a U.S. trade or business.
- Specified federal procurement payments: Income paid to a foreign contractor under section 5000C is included, and withholding applies even when the payer is solely responsible for federal payments.
- Electronic deposits: All tax liability payments must be made through EFTPS; failure to do so may result in a penalty of up to 10 percent.
- Presumption rules: If a payment’s beneficial owner cannot be identified, the payer must apply default withholding rules based on the highest applicable rate for foreign individuals.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Gather your documents
Collect all Forms 1042-S, deposit receipts, and records of amounts paid to foreign persons. Ensure all gross income, income subject to withholding, and tax liability details are complete.
Step 2: Complete identification details
Enter your name, address, and employer identification number. Indicate your filing status as a financial institution, withholding agent, or other entity to ensure proper tax classification.
Step 3: Fill in the tax liability section
Record amounts subject to withholding for each quarter-monthly period. Include gross income, income paid, and tax withheld to match the total annual withholding tax return.
Step 4: Reconcile with Forms 1042-S
Summarize all report payments, total income subject to tax withholding, and reconcile totals with all separate form entries submitted for the same tax year.
Step 5: Calculate totals and sign
Add the total tax withheld, adjustments, and any overpayments. Sign the form certifying accuracy under penalty of perjury and indicate whether it was filed electronically or on paper forms.
Step 6: Submit by the due date
Mail or electronically file Form 1042 with the Internal Revenue Service at the Ogden, Utah address. Electronic filing is encouraged for faster processing and to ensure compliance with current IRS standards.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Incorrect Identification Number: Many filers enter the wrong Employer Identification Number. To avoid rejection, confirm that the correct number is used for the withholding agent’s capacity.
- Totals not matching Forms 1042-S: If totals differ between Forms 1042-S and Form 1042, the IRS may send a notice. To prevent this, reconcile all gross amounts and tax withheld figures before submission.
- Omitting status codes: Withholding agents sometimes leave Chapter 3 or Chapter 4 status codes blank. Always complete both codes to ensure proper income tax reporting.
- Using deposit dates instead of liability dates: The IRS requires reporting based on when income was paid. Verify that amounts subject to withholding are reported on the correct business day.
- Failing to use EFTPS: Submitting payments by check instead of electronic deposit can result in penalties. Always use EFTPS and confirm transactions were successful before the due date.
- Not filing when no tax withheld: Some believe filing is unnecessary if no tax was withheld. File the annual withholding tax return anyway if payments to foreign persons were reported on Form 1042-S.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After Form 1042 is filed, the Internal Revenue Service verifies totals against the 1042-S forms. If amounts do not match, the filer receives a notice requesting clarification. Refunds of overpaid tax are processed within several weeks, while any remaining tax liability generates a bill. Withholding agents must retain records for at least three years to support the accuracy of the report payments and ensure compliance with federal tax laws.
FAQs
Do I need to file Form 1042 if I made payments to foreign individuals but withheld no tax?
Yes, you must still file the form. Even when no tax was withheld, the Internal Revenue Service requires reporting to confirm that the income paid was exempt or covered by a tax treaty.
What is the difference between Form 1042 and Form 1042-S for foreign persons?
Form 1042 reports the total tax liability and summarizes all income paid to foreign persons, while each Form 1042-S provides details for specific recipients and amounts subject to tax withholding.
Can Form 1042 for 2019 be filed electronically?
Yes, electronic filing is permitted and recommended. Many withholding agents, financial institutions, and foreign partnerships are required to file electronically to ensure compliance and faster processing.
What happens if Form 1042 is filed late for the 2019 income tax year?
Late filers may face penalties of 5% per month, up to 25% of the tax due. Filing promptly with reasonable cause can reduce penalties and demonstrate a lack of willful neglect.
How does a withholding agent handle effectively connected income for a foreign person?
If the income is effectively connected with a U.S. business, it is generally reported separately on other IRS tax forms. However, certain withheld payments still appear on Form 1042 to ensure complete reporting.
