Form 1042: Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (2022)

What the Form Is For

Form 1042 is the IRS annual tax return used by U.S. businesses, institutions, and other entities (called “withholding agents”) to report taxes they've withheld from payments made to foreign persons. Think of it as a summary report that documents all the tax money you've collected on behalf of the IRS when paying non-U.S. residents.

If your organization pays income to foreign individuals, companies, partnerships, trusts, or estates—whether it's dividends, interest, royalties, scholarships, pensions, or other types of U.S.-sourced income—you're generally required to withhold a portion (typically 30%) and report it on Form 1042. The form covers tax withheld under:

• Chapter 3 – General foreign payments
• Chapter 4 – FATCA-related payments
• Special categories – Covered expatriates and specified federal procurement payments

Form 1042 works together with Form 1042-S (which reports payments to individual foreign recipients) and Form 1042-T (a transmittal form for paper filings).
You file Form 1042 to show your total withholding liability for the year, while Forms 1042-S provide details about each foreign payee.

Source: IRS.gov

When You’d Use It (Late Filing and Amended Returns)

Standard Filing

Form 1042 for tax year 2022 was due on March 15, 2023.
You could file Form 7004 for a 6-month extension (until September 15, 2023), though taxes were still due by March 15 to avoid penalties.

Starting in 2023, the IRS introduced electronic filing (MeF) for Form 1042, though paper filing remained available for 2022.

Source: IRS.gov

Late Filing

If you missed the filing deadline, file as soon as possible. Late filing triggers penalties of 5% of unpaid tax per month (up to 25%). Even with an extension, failure to pay by March 15 incurs a 0.5% monthly penalty (up to 25%).

Amended Returns

If you find errors after filing—such as incorrect EINs, withholding totals, or missing Forms 1042-S—you must file an amended return immediately.
Use the same year’s Form 1042, mark it “Amended” at the top, and correct all related Forms 1042-S.

Common amendment reasons include:

• Discovering unreported payments
• Miscalculating withholding
• Correcting recipient details after distributing Forms 1042-S

Source: IRS.gov

Key Rules for 2022

Electronic Filing Introduction

The IRS launched Modernized e-File (MeF) for Form 1042 in 2023 (for 2022 filings).
While voluntary, electronic filing was encouraged. No waiver was needed if you couldn’t e-file in 2022.

Chapter 3 and 4 Status Codes Required

All filers had to provide both Chapter 3 and Chapter 4 status codes, identifying their role (e.g., Qualified Intermediary, Participating FFI, U.S. Withholding Agent).

Deposit Requirements

All deposits must be made electronically via EFTPS. Mailing checks was not permitted.
Deposit deadlines:

• $2,000+ undeposited tax → deposit within 3 business days
• $200–$2,000 → deposit within 15 days
• < $200 → may pay with Form 1042 by March 15, 2023

Proposed Regulations

Withholding agents could rely on the December 18, 2018 proposed regulations easing FATCA and Chapter 3 burdens.
Notably, partnerships and trusts could withhold in a subsequent year for a prior year’s income and designate deposits accordingly.

Source: IRS.gov

Step-by-Step Filing (High Level)

Step 1: Gather Your Information

Collect all payment data for foreign persons from calendar year 2022, including:

• Amounts paid
• Taxes withheld
• Recipient documentation (Forms W-8)
  Ensure you have the correct EIN or specialized EIN (QI-EIN, WP-EIN, WT-EIN) and valid status codes.

Step 2: Complete Forms 1042-S First

Before filling out Form 1042, prepare Forms 1042-S for each foreign recipient. These serve as the detailed support for your annual totals.

Step 3: Record Your Tax Liability (Section 1, Lines 1-60)

This section tracks withholding liability by quarter-monthly periods throughout 2022.
Report liability when income was paid, not when deposited.
Avoid negative entries or deposit amounts here.

Step 4: Reconcile Payments (Section 2)

Report all U.S.-source FDAP income and other reportable payments, even if no tax was withheld.
This helps the IRS match Form 1042 totals with the sum of all Forms 1042-S.

Step 5: Calculate Total Tax Liability and Payments (Lines 64-69)

Summarize:

• Chapter 3 and 4 liabilities
• Adjustments for over/under-withholding
• Deposits made
• Balance due or overpayment

Step 6: Sign and Submit

Sign under penalty of perjury by an authorized individual.
Mail paper returns to IRS Ogden, Utah, or submit electronically if using MeF.
Include payment for any balance due.

Source: IRS.gov

Common Mistakes and How to Avoid Them

Missing or Incorrect EINs

Use the correct identifier for your filing type: QI-EIN, WP-EIN, or WT-EIN (not your regular EIN).

Incomplete Status Codes

Provide both Chapter 3 and Chapter 4 status codes—even if you only report Chapter 3 payments.

Confusing Liability and Deposits (Lines 1-60)

Record when the payment occurred, not when you deposited the tax.
The total of lines 1-60 must match your overall liability on lines 64-69.

Recording Adjustments Incorrectly

Adjustments for over- or under-withholding belong only on line 64a, not in the liability section.

Skipping Section 2

Section 2 is mandatory—report total U.S.-source income even when no tax was withheld.

Math Errors

Ensure lines 64b (Chapter 3) + 64c (Chapter 4) = total tax liability.
Use tax software or double-check calculations carefully.

Using Outdated Forms

Always use the correct year’s version. A 2021 form for 2022 filings will be rejected.

Source: IRS.gov

What Happens After You File

Processing Timeline

The IRS processes Form 1042 at the Ogden Service Center. They review math accuracy, payment consistency, and Form 1042-S matches. Processing can take several weeks to months.

If You Owe Money

Balances due (line 69) should have been paid by March 15, 2023.
The IRS will bill you for unpaid amounts, interest, and penalties (you don’t need to compute these).

If You Overpaid

If your deposits exceeded your tax liability, you can request a refund or apply it to the next year. Processing may take several months.

Penalty Notices

The IRS has increased use of data-integrity tools to detect inconsistencies. Expect more penalty notices for:

• Late filings
• Missing Forms 1042-S
• Mismatched totals
• Math errors

Respond promptly with corrections or a reasonable cause statement.

Record Keeping

Keep copies of Form 1042, all Forms 1042-S, and all supporting documentation for at least four years.
Maintain records for:

• Payment and withholding calculations
• Forms W-8 and other recipient certifications
• EFTPS deposit confirmations

Source: IRS.gov

Frequently Asked Questions (FAQs)

1. Do I need to file Form 1042 if I filed Forms 1042-S electronically?

Yes. Form 1042 is still required—it summarizes total annual withholding.
Forms 1042-S provide individual recipient details.

2. What’s the difference between Form 1042 and Form 1042-S?

Form 1042 is your annual withholding return, while Form 1042-S is an information return issued to each foreign payee.
You file one Form 1042 but potentially many Forms 1042-S.

3. Can I file Form 1042 even if I didn’t withhold tax?

Yes. Filing is required if you file any Forms 1042-S, even if withholding was reduced or eliminated by treaty.

4. What if I made deposits late or in the wrong amounts?

Deposit penalties apply as follows:

• 1–5 days late: 2%
• 6–15 days late: 5%
• >15 days late: 10%
• After IRS notice: 15%

Over-deposits can be claimed as overpayments (line 68).

5. Can I get an extension to file Form 1042?

Yes. File Form 7004 by March 15 for a 6-month extension (until September 15).
This extends filing time only—not payment time.

6. Who qualifies as a withholding agent?

Any person or entity (U.S. or foreign) with control, receipt, or custody of U.S.-source income paid to a foreign person.
Examples include:

• U.S. banks paying foreign account holders
• U.S. corporations paying dividends to foreign shareholders
• Universities paying scholarships to nonresident students
• Partnerships with foreign partners

7. What if I discover errors after the deadline?

File an Amended Form 1042 for the same year and mark it clearly as “Amended.”
Submit corrected Forms 1042-S for affected recipients and pay any additional tax.
Let the IRS calculate penalties and interest.

Source: IRS.gov

Sources

All information is derived from official IRS guidance:

• 2022 Instructions for Form 1042
• About Form 1042 (IRS.gov)
• Instructions for Form 1042 (2024 update)
• Modernized e-File (MeF) for Form 1042