Form 1042-S: A Complete Guide for 2015

What Form 1042-S Is For

Form 1042-S is an information return used by U.S. businesses, financial institutions, and other organizations (called "withholding agents") to report payments made to foreign persons from U.S. sources. Think of it as the international equivalent of a 1099 form, but specifically for non-U.S. citizens and foreign entities receiving income from American sources.

The form serves two primary purposes: first, it reports income paid to foreign individuals and organizations, including wages, scholarships, royalties, dividends, interest, and other types of U.S.-source income. Second, it documents any taxes that were withheld from these payments under Chapter 3 or Chapter 4 (FATCA) of the Internal Revenue Code.

For 2015, the form was significantly updated to accommodate Foreign Account Tax Compliance Act (FATCA) reporting requirements, which means it captures more detailed information about foreign financial accounts and requires reporting of both Chapter 3 withholding (traditional nonresident alien withholding) and Chapter 4 withholding (FATCA-related). The form is critical for both withholding agents—who must prove they've properly withheld and reported taxes—and recipients, who need it to file their U.S. tax returns or claim refunds for over-withheld amounts. IRS Form 1042-S Instructions 2015

When You’d Use Form 1042-S

Original Filing Deadline

For amounts paid during calendar year 2015, withholding agents must file Form 1042-S with the IRS by March 15, 2016. This same deadline applies to furnishing copies to recipients—the foreign persons who received the income. Unlike some tax forms that have different deadlines for filing with the IRS versus providing copies to recipients, Form 1042-S keeps it simple with a single March 15 deadline for both.

Filing Late

If you miss the March 15 deadline, you should file as soon as possible. The IRS imposes penalties for late filing that escalate over time. If you file within 30 days of the deadline, the penalty is $60 per form. Filing 31 days late through August 1 increases the penalty to $130 per form. After August 1 or not filing at all, you face penalties up to $310 per form. If the IRS determines you intentionally disregarded the filing requirement, penalties can reach $560 per form with no maximum cap. IRS Penalties for Form 1042-S

Extensions

You can request an automatic 30-day extension by filing Form 8809 (Application for Extension of Time to File Information Returns) before the March 15 deadline. If you need additional time, you can submit a second Form 8809 before your initial extension expires. However, extension requests should be filed at least 45 days before the due date when requesting a hardship waiver. Important note: an extension to file with the IRS does not automatically extend the deadline for furnishing copies to recipients—you need to submit a separate letter request for that extension.

Amended Returns

If you discover errors after filing, you must file an amended Form 1042-S by checking the "Amended" box on the corrected form. Critical rule: if you file an amended form with the IRS, you must provide an amended copy to the recipient as soon as possible. A common mistake withholding agents make is amending the IRS copy without updating the recipient, which causes processing delays and potential penalties. IRS Form 1042-S Instructions 2015

Key Rules or Details for 2015

Who Must File

Every withholding agent must file Form 1042-S if they paid U.S.-source income to foreign persons during 2015, even if no tax was actually withheld. A withholding agent is any person or entity—U.S. or foreign—that has control, receipt, or custody of payments subject to withholding, including corporations, partnerships, universities, employers, and financial institutions. Individual withholding agents are exempt from filing only if they're not making payments as part of a trade or business and no withholding is required.

Electronic Filing Requirement

Starting in 2014 and continuing for 2015, the IRS implemented strict electronic filing rules. Financial institutions (U.S. or foreign) must file electronically regardless of how many forms they have. Non-financial institutions must file electronically if they have 250 or more Forms 1042-S for the year. This 250-form threshold applies separately to original returns and amended returns, and individually to each reporting entity by its taxpayer identification number. Electronic submissions go through the IRS Filing Information Returns Electronically (FIRE) System available at fire.irs.gov. IRS Form 1042-S Instructions 2015

New Requirements for 2015

The 2015 tax year introduced a mandatory reporting requirement: withholding agents who report amounts withheld by another withholding agent must now include the name and Employer Identification Number (EIN) of the withholding agent that actually withheld the tax (in boxes 14a and 14b). This information was optional for 2014 but became required for 2015 and beyond.

Separate Forms Required

You must file a separate Form 1042-S for each recipient, each type of income (identified by income codes), and each tax rate applied. For example, if you paid the same foreign person both scholarship income and dividend income, you'd need two separate forms. If you withheld at different rates on similar income types, separate forms are required for each rate.

Companion Filing Requirement

If you file Form 1042-S, you must also file Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons), which summarizes all your withholding activity for the year. When submitting paper forms, you'll also need Form 1042-T (Annual Summary and Transmittal of Forms 1042-S) to transmit your Forms 1042-S to the IRS. IRS Who Must File

Step-by-Step (High Level)

Step 1: Gather Documentation

Collect all withholding certificates (Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY) from your foreign payees. These forms establish the payee's foreign status, country of residence, taxpayer identification number, and any tax treaty benefits they're claiming. Without proper documentation, you may be required to apply presumption rules that could result in maximum withholding rates.

Step 2: Determine Income Codes and Tax Rates

Identify the type of income you paid using the IRS income code list (codes like 01 for interest, 06 for dividends, 15 for scholarships, etc.). Calculate the appropriate withholding rate based on the income type, the recipient's country, and any applicable tax treaties. Default withholding for most income types is 30%, but treaties may reduce this to 15%, 10%, or 0%.

Step 3: Complete the Form

Fill out Form 1042-S for each required combination of recipient, income type, and tax rate. Key information includes the withholding agent's name and EIN (boxes 12a-12i), recipient information including name, address, country, and taxpayer identification number (boxes 13a-13m), income code (box 1), gross income amount (box 2), withholding tax rate (box 3b), tax withheld (box 7), and the appropriate chapter 3 and chapter 4 exemption codes (boxes 3a and 4a).

Step 4: File with the IRS

For electronic filers, submit through the FIRE system by March 15, 2016. For paper filers (fewer than 250 forms and not a financial institution), complete Form 1042-T and mail it with all Forms 1042-S (Copy A) to the address specified in the Form 1042-T instructions. Keep in mind that it's the filer's responsibility to check the FIRE system status within 5 business days—the IRS will not mail error reports for rejected electronic files.

Step 5: Furnish Recipient Copies

Provide copies of Form 1042-S to each recipient by March 15, 2016. Recipients should receive Copy B (for filing with their tax return), Copy C (for their records), and Copy D (also for their records). You must retain Copy E for your files.

Step 6: Maintain Records

Keep copies of all filed Forms 1042-S or have the ability to reconstruct the data for at least 3 years after the reporting due date. This documentation is essential for IRS audits and compliance verification. IRS Form 1042-S Instructions 2015

Common Mistakes and How to Avoid Them

The IRS has identified recurring errors that cause processing delays, penalty notices, and problems for recipients filing their tax returns. Here are the most common mistakes and how to prevent them:

Inconsistent Information Across Copies

The #1 error is providing different information on Copy A (filed with IRS) versus the copies given to recipients. The recipient's name must be exactly the same on all copies A through E. Tax rates must match precisely (don't use 30.00 on one copy and 29.50 on another). All dollar amounts, codes, and checked boxes must be identical across all copies. Solution: Use the exact same source data to print all copies, or file electronically where consistency is automatically maintained.

Using Cents Instead of Whole Dollars

Form 1042-S is a dollars-only form—all amounts must be rounded to the nearest whole dollar. Don't report $100.25 on one copy and $100 on another, or include cents at all. Round amounts of 50 cents or more up to the next dollar, and amounts less than 50 cents down. Solution: Apply rounding rules before entering any amounts on the form.

Using Prior-Year Forms

Always use the 2015 Form 1042-S for 2015 payments. Forms change year to year, and using the wrong year's form can result in rejection or penalties for filing incorrect returns. For 2015, there were significant updates including the mandatory reporting of the primary withholding agent's information—using a 2014 form would miss this requirement.

Failing to Amend Recipient Copies

When you file an amended Form 1042-S with the IRS (by checking the "Amended" box), you must provide amended copies to the recipient as quickly as possible. The IRS frequently sees situations where Copy A filed with the IRS is marked "Amended" but the recipient never receives the corrected information, causing problems when they try to file their tax return or claim refunds.

Truncating Taxpayer Identification Numbers Incorrectly

While you may truncate (partially hide) the recipient's TIN on copies provided to them for security purposes, you must follow IRS truncation rules exactly. Generally, you can truncate TINs only when reporting bank deposit interest to certain nonresident aliens, and you must use the specific format prescribed in the instructions. Incorrect truncation formats are considered filing errors.

Mixing Chapter 3 and Chapter 4 Reporting

For 2015, you cannot check both Chapter 3 and Chapter 4 indicators on a single form—you must choose one or the other. Payments are generally reported under either Chapter 3 (traditional nonresident alien withholding) or Chapter 4 (FATCA withholding), but not both simultaneously. Understanding which chapter applies requires careful analysis of the payment type and recipient's status.

Incomplete Substitute Forms

If you create substitute forms instead of using the official IRS form, they must be exact copies of the official Form 1042-S Copy A in both format and content. Any deviation can result in rejection and penalties for failure to file correct returns. When in doubt, use the official IRS forms. IRS Form 1042-S Instructions 2015

What Happens After You File

For Withholding Agents

After filing Form 1042-S with the IRS and furnishing copies to recipients by March 15, your immediate obligations are complete, but several things may still occur. The IRS will process your submissions and may send correction notices if they identify errors or inconsistencies—particularly mismatches between Form 1042 (the summary return) and the individual Forms 1042-S.

You should also reconcile your Forms 1042-S with your Form 1042 to ensure the totals match. The aggregate amounts reported on all Forms 1042-S should equal the amounts reported on Form 1042. Any discrepancies will trigger IRS inquiries.

Keep your records accessible for at least three years. The IRS can audit your withholding and reporting at any time during this period, and they may request documentation proving you obtained proper withholding certificates, applied the correct tax rates, and deposited withheld taxes timely.

If you discover errors after filing, promptly prepare and file amended Forms 1042-S and an amended Form 1042. Late corrections are better than leaving errors in place, and voluntary corrections generally result in lower penalties than IRS-discovered errors.

For Recipients (Foreign Persons)

Recipients use Form 1042-S to prepare their U.S. tax returns if they're required to file one (typically Form 1040-NR for individuals). The form shows their U.S.-source income and any taxes already withheld, allowing them to calculate whether they owe additional tax or are entitled to a refund.

If too much tax was withheld—common when treaty benefits weren't properly claimed at the time of payment—recipients can use Form 1042-S to claim refunds by filing Form 1040-NR. The refund process can take several months, and recipients should retain their Forms 1042-S as proof of withholding.

Foreign persons who receive Forms 1042-S should verify the information is accurate. If the withholding agent reports incorrect amounts, tax rates, or personal information, recipients should contact the withholding agent immediately to request an amended form. Using incorrect information on a tax return can trigger audits and processing delays.

Some recipients may not be required to file a U.S. tax return if all tax was properly withheld at source and they have no other U.S. tax obligations. However, they should still retain Form 1042-S for their records in case the IRS has questions.

FAQs

1. What's the difference between Form 1042-S and Form W-2?

Form W-2 reports wages and compensation paid to employees, while Form 1042-S reports U.S.-source income paid to foreign persons. If you're a foreign person working in the U.S., you might receive a W-2 for wages from your employment and a 1042-S for other payments like scholarship grants, treaty-exempt income, or royalties. The forms serve different purposes under different tax regimes, though some foreign workers may receive both forms from the same employer.

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

Yes, in most cases. The filing requirement applies even when no tax was withheld—whether due to treaty exemptions, income being effectively connected with a U.S. trade or business, or other Code exceptions. The form serves as an information return documenting that a payment was made to a foreign person, regardless of whether withholding occurred. The exception is individuals making payments outside their trade or business when no withholding is required. IRS Who Must File

3. Can I combine multiple payments to the same person on one Form 1042-S?

Only if all the payments share the same income code and tax rate. If you paid the same foreign person $5,000 in dividends and $3,000 in interest, you must file two separate forms because dividends and interest have different income codes. Similarly, if you paid dividends at both 30% and 15% rates (perhaps before and after receiving proper treaty documentation), you need separate forms for each rate.

4. What if the foreign person doesn't have a U.S. taxpayer identification number?

You should still file Form 1042-S, but you must generally withhold at the statutory rate (typically 30%) unless an exception applies. Enter "UNKNOWN" or the foreign tax identification number in the appropriate box and include an explanation. However, proper documentation with a U.S. TIN (or foreign TIN under certain circumstances) is necessary to claim reduced treaty rates, so recipients have a strong incentive to obtain proper identification.

5. How do I correct an error on a previously filed Form 1042-S?

File an amended Form 1042-S by checking the "Amended" box and entering the corrected information. Crucially, you must use the same Unique Form Identifier as the original form so the IRS can match the correction to the original filing. You must furnish the amended form to the recipient as soon as possible—don't just file with the IRS and forget about updating the recipient. If the error affects the totals on your Form 1042, you'll also need to file an amended Form 1042.

6. Do I need to file Form 1042-S for payments to Canadian or Mexican residents?

Yes, if they're foreign persons receiving U.S.-source income subject to reporting. The fact that Canada and Mexico are neighboring countries doesn't exempt withholding agents from reporting requirements. However, the U.S. has comprehensive tax treaties with both countries that may reduce or eliminate withholding on many payment types. You'll still file the form showing the reduced rate or treaty exemption, documenting that the payment was made and why tax wasn't withheld (or was withheld at a reduced rate).

7. What happens if I file paper forms when I'm required to file electronically?

The IRS may treat paper forms as not filed if you meet the electronic filing requirement (financial institution or 250+ forms). This can result in penalties for failure to file. If you cannot meet the electronic filing requirement due to hardship, you must apply for a waiver using Form 8508 at least 45 days before the due date. The hardship waiver is not available to financial institutions, qualified intermediaries, withholding foreign partnerships, or withholding foreign trusts—these entities must file electronically regardless of circumstances. IRS Form 1042-S Instructions 2015

For More Information

Visit the official IRS page for Form 1042-S at www.irs.gov/form1042s or download the complete 2015 instructions at IRS.gov/pub/irs-prior/i1042s--2015.pdf. For general withholding guidance, see IRS Publication 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities).