Form 1042-S (2013): A Plain-English Guide for Foreign Persons' U.S. Income Reporting

What Form 1042-S Is For

Form 1042-S, ""Foreign Person's U.S. Source Income Subject to Withholding,"" is an information return used to report payments made to foreign persons (individuals and entities) from U.S. sources during the 2013 calendar year. Think of it as the IRS's way of tracking income paid to non-U.S. residents that may be subject to federal tax withholding.

This form serves two main purposes: it tells the IRS what income was paid to foreign recipients and how much tax (if any) was withheld from those payments. Even if no tax was actually withheld—perhaps because the income was exempt under a tax treaty or qualified for a special exemption—the form still must be filed in most cases.

The withholding agent (typically the U.S. company or individual making the payment) must file Form 1042-S to report various types of income, including interest, dividends, royalties, rents, compensation for personal services, pension distributions, gambling winnings, scholarship payments, and effectively connected income. The recipient also receives copies to use when filing their own tax returns.

It's important to understand that Form 1042-S is not filed by the foreign recipient themselves—it's filed by the U.S. entity or person who paid them. However, foreign persons need this form to accurately report their U.S.-source income and claim any credits for taxes that were withheld. IRS.gov

When You’d Use Form 1042-S

Deadlines and Late/Amended Filing

For the 2013 tax year, Form 1042-S had a standard filing deadline of March 15, 2014. This deadline applied both for submitting Copy A to the IRS and for furnishing copies to the foreign recipients who received the payments. If you missed this deadline, you may have faced penalties unless you could demonstrate reasonable cause.

Extensions

If you needed more time to file, you should have submitted Form 8809 (Application for Extension of Time To File Information Returns) as soon as you realized you needed an extension, but no later than the March 15 deadline. This granted an automatic 30-day extension. If you needed even more time, you could have filed a second Form 8809 before the first extension expired. However, if you were requesting extensions for two or more withholding agents, you were required to submit those requests electronically.

Amended Returns

Sometimes errors happen. If you filed a Form 1042-S and later discovered mistakes in the recipient information, income amounts, withholding amounts, or codes used, you must file an amended Form 1042-S as soon as possible. To do this, prepare a new Form 1042-S with all the correct information and mark an ""X"" in the ""AMENDED"" box at the top of the form. The amended form must be filed with Form 1042-T (Annual Summary and Transmittal of Forms 1042-S). If your corrections change the information previously reported on your Form 1042 (the annual withholding tax return), you must also file an amended Form 1042. Note that the electronic filing requirement applies separately to original and amended returns. IRS.gov

Key Rules or Details for 2013

Electronic Filing Mandate

If you had 250 or more Forms 1042-S to file, you were required to submit them electronically through the Filing Information Returns Electronically (FIRE) System. This requirement applied separately to original and amended returns. For example, if you filed 300 original forms electronically but needed to amend only 200 of them, you could file those 200 amended forms on paper. However, electronic filing was strongly encouraged even for smaller filers. If you were required to file electronically but failed to do so without an approved hardship waiver, you faced a penalty of $50 per return, up to $100,000.

New Deposit Interest Reporting

Beginning January 1, 2013, deposit interest described in section 871(i)(2)(A) of $10 or more paid to certain nonresident alien individuals on deposits at U.S. offices had to be reported on Form 1042-S. This represented a change from prior years and expanded the reporting requirements significantly.

Withholding Rate Pools

When making payments to qualified intermediaries (QIs), withholding foreign partnerships (WPs), or withholding foreign trusts (WTs), withholding agents had to complete separate Forms 1042-S for each ""withholding rate pool""—essentially, each combination of income type and withholding rate.

No Blending of Tax Rates

If you withheld at more than one tax rate for a specific type of income paid to the same recipient during 2013, you had to file separate Forms 1042-S for each rate. You could not ""blend"" rates on a single form—this was a common error the IRS specifically warned against.

Complete All Required Fields

At minimum, filers had to complete boxes 1, 2, 5, 6, 7, 9, 11, 12a-12d, 13a, 13b, and 16. Boxes 7 and 9 (net federal tax withheld and exemption code) had to be completed even if no tax was actually withheld. The gross income in box 2 could never be zero. IRS.gov

Step-by-Step (High Level)

Here's how the Form 1042-S process typically worked in 2013:

Step 1: Identify Reportable Payments

Throughout 2013, whenever you made payments to foreign persons that constituted U.S.-source income, you needed to track these. This included interest, dividends, rents, royalties, compensation, and other categories of fixed or determinable annual or periodical (FDAP) income.

Step 2: Determine Withholding Requirements

For each payment, you had to determine whether withholding was required and at what rate. The standard rate was 30%, but this could be reduced by tax treaties, Code exemptions, or if the income was effectively connected with a U.S. trade or business. You needed valid documentation (typically Form W-8 series) from recipients to apply reduced rates.

Step 3: Withhold and Pay Taxes

If withholding was required, you deducted the appropriate amount and deposited it with the IRS according to the deposit rules outlined in Publication 515.

Step 4: Prepare Forms 1042-S

After the calendar year ended, you prepared a separate Form 1042-S for each recipient (or withholding rate pool) showing the gross income paid, the amount withheld, and relevant codes identifying the type of income, recipient category, and any exemptions claimed.

Step 5: File Copy A and Form 1042-T

By March 15, 2014, you submitted Copy A of all Forms 1042-S along with Form 1042-T (the transmittal form) to the IRS. If you had 250 or more forms, this had to be done electronically through the FIRE System.

Step 6: Furnish Recipient Copies

Also by March 15, 2014, you provided Copies B, C, and D to each recipient so they could use the information for their tax filings. You retained Copy E for your records.

Step 7: File Form 1042

You also had to file Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons), which summarized all the Forms 1042-S you filed and reconciled the amounts withheld. IRS.gov

Common Mistakes and How to Avoid Them

The IRS identified several frequent errors that filers made with Form 1042-S in 2013:

Using Wrong or Unapproved Codes

Each form requires specific codes for income type (box 1), exemption status (box 6), recipient category (box 13b), and country (box 12a). Using codes not listed in the instructions, or using the wrong code for a situation, was a common error. Always double-check the code tables in the instructions. Never use recipient code 20 (unknown recipient) unless you genuinely don't know who the recipient is—and if you use it, you must withhold at 30%.

Blending Tax Rates

If you paid the same type of income to the same recipient at different rates during the year, you cannot report it on one form. For example, if a treaty rate changed mid-year, you need separate Forms 1042-S for the periods with different rates.

Missing Required Boxes

Every Form 1042-S must have information in boxes 1, 2, 5, 6, 7, 9, 11, 12a-12d, 13a, 13b, and 16 at minimum. Boxes 7 and 9 must always be completed, even if no withholding occurred (enter ""0.00"" for zero withholding).

Reporting Zero Gross Income

Box 2 (gross income) can never be zero. If there was truly no payment, don't file the form.

Not Filing Electronically When Required

If you had 250 or more forms and didn't file electronically (or didn't have an approved waiver), you faced automatic penalties. Track your form count carefully.

Failing to File Amended Forms

When you discover errors, file corrected forms immediately. Delaying can increase penalties and create problems for recipients who may have already filed their returns based on incorrect information.

Substitute Forms Not Exact

If you created your own forms rather than using official IRS versions, they had to be exact replicas of the official Copy A format. Variations could trigger rejection and penalties. IRS.gov

What Happens After You File

After filing Form 1042-S for 2013, several things occurred:

IRS Processing

The IRS matched the information on your Forms 1042-S with your Form 1042 to verify consistency. They also used this information to track foreign persons' U.S.-source income and ensure proper tax compliance.

Recipient Tax Returns

Foreign recipients used their copies of Form 1042-S to prepare their U.S. tax returns (typically Form 1040-NR for individuals or Form 1120-F for corporations). The form allowed them to report the income and claim credit for any taxes you withheld on their behalf.

Record Retention

You were required to keep copies of all Forms 1042-S (or have the ability to reconstruct the data) for at least three years after the reporting due date. The IRS could audit your returns during this period.

Potential Correspondence

If the IRS identified discrepancies or problems with your filing, they would send notices requesting corrections or clarifications. For electronic filers using the FIRE System, it was your responsibility to check the transmission status within five business days—the IRS did not mail error reports for failed electronic transmissions.

Penalties for Non-Compliance

If you failed to file timely or correct forms, penalties were assessed based on a tiered schedule. The sooner you corrected problems, the lower the penalty. IRS.gov

FAQs

Q1: Do I need to file Form 1042-S if I didn't withhold any tax?

Yes, in most cases. You must file Form 1042-S even if no tax was withheld because the income was exempt under a tax treaty or Code provision, or was effectively connected with a U.S. trade or business. The form is an information return, not just a withholding report. There are some exceptions for certain types of payments (like portfolio interest on registered obligations to financial institutions), so review the instructions carefully.

Q2: What's the difference between Form 1042-S and Form 1042?

Form 1042-S is filed for each recipient (or withholding rate pool) and shows the specific payments made to that recipient. Form 1042 is your annual withholding tax return that summarizes all the Forms 1042-S you filed and reports the total tax you withheld. Think of 1042-S as the detail and Form 1042 as the summary. You must file both.

Q3: Can I combine multiple payments on one Form 1042-S?

It depends. You can report multiple payments of the same income type at the same withholding rate to the same recipient on one form. However, you cannot combine different income types or different withholding rates on the same Copy A filed with the IRS (though recipient copies may contain multiple income types). Each unique combination requires its own form.

Q4: What if I don't have a tax identification number for the foreign recipient?

You should make reasonable efforts to obtain the recipient's foreign tax identification number (TIN) or U.S. TIN if they have one. If you cannot obtain it despite due diligence, you must still file the form with as much information as you have. However, lack of documentation may require you to apply presumption rules and withhold at higher rates.

Q5: Can I file paper forms if I have fewer than 250 forms?

Yes. The electronic filing requirement only applies if you have 250 or more forms. However, the IRS encourages voluntary electronic filing even for smaller filers, as it's faster and reduces errors. If you want to file electronically, you can do so through the FIRE System.

Q6: What happens if I file late?

Late filing triggers penalties based on how late you file. If you file within 30 days after March 15, 2014, the penalty was $30 per form (capped at $250,000, or $75,000 for small businesses). If you filed more than 30 days late but by August 1, 2014, it was $60 per form (capped at $500,000, or $200,000 for small businesses). After August 1 or for non-filing, it was $100 per form (capped at $1.5 million, or $500,000 for small businesses). Intentional disregard carries much steeper penalties.

Q7: Do foreign recipients need to keep their copies of Form 1042-S?

Yes, absolutely. Foreign persons should keep all copies for their records and use them when preparing their U.S. tax returns. The form documents their U.S.-source income and withholding, which they'll need to report and potentially claim as credits. They should keep these records for at least three years after filing their returns. IRS.gov

Note: This guide is based on 2013 rules. Tax laws change frequently, so always consult the current year's instructions and consider seeking professional advice for specific situations. For the most up-to-date information, visit IRS.gov.