Form 1042-S: Foreign Person's U.S. Source Income Subject to Withholding (2017)

What Form 1042-S Is For

Form 1042-S is an information return used to report income paid to foreign persons—including nonresident aliens, foreign corporations, partnerships, trusts, and estates—when that income comes from U.S. sources and may be subject to withholding tax. Think of it as the international equivalent of a Form 1099, but specifically for foreign recipients of U.S.-sourced income.

The form serves two primary purposes: it reports the amount and type of income paid to foreign persons, and it documents how much tax was withheld (if any) from those payments. Common types of income reported include scholarships and fellowships (for foreign students), royalties, interest, dividends, pensions, rents, compensation for personal services performed in the U.S., and various other payment types.

Who files it? Withholding agents—essentially any U.S. or foreign person, business, or institution that controls, receives, or makes payments of U.S.-source income to foreign persons. This includes universities paying scholarships to international students, companies paying royalties to foreign authors or inventors, financial institutions paying interest or dividends, and businesses compensating foreign contractors for U.S.-based services.

IRS Form 1042-S About Page

When You’d Use Form 1042-S (Late/Amended Filings)

Original Filing

For the 2017 tax year, Form 1042-S must be filed with the IRS and furnished to recipients by March 15, 2018. If you're a withholding agent who made qualifying payments to foreign persons during calendar year 2017, this is your deadline.

Extensions

If you need more time, file Form 8809 (Application for Extension of Time To File Information Returns) on or before March 15, 2018. This grants you an automatic 30-day extension. Need even more time? You can submit a second Form 8809 before the first extension expires.

Amended Returns

Discovered an error after filing? You must correct it as soon as possible by filing an amended Form 1042-S. Starting in 2017, the IRS introduced important amendment requirements: each amended form must carry the same unique 10-digit identifier as the original form, plus an amendment number (use "1" for the first amendment, "2" for the second, and so on). This tracking system helps the IRS match corrections to original submissions. If you provide an amended form to a recipient, you must also file it with the IRS. Additionally, if your amendments change information previously reported on Form 1042 (the annual withholding tax return), you'll need to amend that form too.

2017 Instructions for Form 1042-S

Key Rules for 2017

Unique Form Identifier (NEW)

Every Form 1042-S filed in 2017 must have a unique 10-digit numeric identifier assigned by the withholding agent. This cannot be the recipient's Social Security number or taxpayer ID—it must be a distinct tracking number you create. Each original form for the year needs its own unique number, though you can reuse the same identifier in subsequent years.

Country Code Updates

The IRS standardized the list of foreign country codes used on Form 1042-S to match other IRS forms (like Forms 926, 1118, and 8805). You'll find the official list at IRS.gov/countrycodes.

Foreign TIN and Date of Birth

Financial institutions filing Form 1042-S for payments on obligations maintained at their U.S. offices or branches must now report the recipient's foreign taxpayer identifying number (FTIN) and date of birth (if the recipient is an individual).

Account-by-Account Reporting

U.S. financial institutions and U.S. branches of foreign financial institutions maintaining accounts within the United States must file separate Forms 1042-S for each account when making payments of the same income type to the same beneficial owner. No more combining multiple accounts on one form.

FATCA/Chapter 4 Reporting

Forms must accommodate reporting under both Chapter 3 (traditional withholding) and Chapter 4 (Foreign Account Tax Compliance Act). Withholding agents must enter appropriate chapter 3 and chapter 4 status codes regardless of payment type.

Electronic Filing Requirement

If you're a financial institution (regardless of how many forms you file) OR you have 250 or more Forms 1042-S to file, you must submit electronically through the IRS Filing Information Returns Electronically (FIRE) System at fire.irs.gov.

Step-by-Step (High Level)

Step 1: Determine If You Must File

Ask yourself: Did you make payments of U.S.-source income to foreign persons during 2017? If yes, and you're the withholding agent (the person who controls or disburses the payment), you likely need to file—even if no tax was actually withheld.

Step 2: Gather Required Information

Collect documentation for each recipient, including their name, foreign address, country code, taxpayer identification numbers (U.S. or foreign), and any treaty claims. You'll also need to know the exact amount paid, the income type (determined by specific income codes), the applicable tax rate, and the amount withheld.

Step 3: Assign Unique Identifiers

Create a unique 10-digit numeric identifier for each Form 1042-S you'll file. Keep a tracking system—you'll need these same numbers if you file amendments later.

Step 4: Complete the Form

Fill out all required fields: income code (box 1), gross income amount (box 2, which cannot be zero), chapter indicator (box 3), exemption codes if applicable, tax rate and withholding amounts, withholding agent information (boxes 12a-12i), and recipient information (boxes 13a-13l). Use only the specific codes listed in the IRS instructions—don't make up your own or "blend" tax rates.

Step 5: File With the IRS

For paper filing (fewer than 250 forms and not a financial institution): Attach Copy A to Form 1042-T (Annual Summary and Transmittal) and mail to the address in the Form 1042-T instructions. For electronic filing: Submit through the FIRE System. Check your submission status within 5 business days.

Step 6: Furnish Copies to Recipients

Provide Copies B, C, and D to each recipient by March 15, 2018. Keep Copy E for your records. The recipient's copy must match exactly what you filed with the IRS.

Step 7: File Form 1042

Don't forget—if you file Form 1042-S, you must also file Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons) to report the total withholding for the year.

Common Mistakes and How to Avoid Them

Missing Required Fields

The IRS rejects incomplete forms. At minimum, you must complete boxes 1, 2, 7, 12a, 12d, 12f (except if you're a U.S. person), 12h, 12i, and 13a. Many withholding agents forget to include chapter 3 and 4 status codes or leave out the recipient's country code.

Zero Gross Income

Box 2 (gross income) can never be zero. If you're filing a Form 1042-S, there must be reportable income.

Wrong Income Codes

Using incorrect income codes is a frequent error. Code 16 is for scholarships and fellowships, Code 15 for royalties, Code 18 for compensation for personal services—make sure you're using the exact code from the IRS instructions that matches your payment type.

Mismatched Recipient Copies

Any differences between the copy furnished to recipients and the copy filed with the IRS will delay processing and may cause the IRS to disallow the recipient's claims for refunds or credits. Triple-check that all copies are identical.

Improper Tax Rates

Don't attempt to "blend" or create custom withholding rates. Use only rates specifically allowed by statute, regulations, or applicable tax treaties.

Forgetting the Unique Identifier

This is new for 2017, and many first-time filers forget it. Every form needs that 10-digit numeric identifier—set up your system before you start filing.

Paper Filing When Required to E-File

Financial institutions must always file electronically, as must any withholding agent filing 250 or more forms. Filing on paper when you're required to e-file can result in penalties.

Not Filing at All

Some withholding agents mistakenly believe they don't need to file if no tax was withheld. Wrong! You must file Form 1042-S even if the income was treaty-exempt, effectively connected to a U.S. trade or business, or the tax was released to the recipient.

What Happens After You File

IRS Processing

The IRS processes your Form 1042-S submissions and matches them against recipients' tax returns and Form 1042 (your annual withholding tax return). For electronic filers, check the FIRE System status within 5 business days to verify successful transmission and catch any errors.

Recipient Tax Returns

Foreign recipients use Form 1042-S to prepare their U.S. tax returns (typically Form 1040-NR for individuals or Form 1120-F for corporations). The withholding amount shown on the form can be claimed as a credit against their U.S. tax liability or used to support refund claims.

Record Retention

Keep copies of all filed Forms 1042-S (or maintain the ability to reconstruct the data) for at least 3 years after the reporting due date. The IRS may audit your returns or request documentation.

Penalty Notices

If you filed late, incorrectly, or not at all, you may receive penalty notices from the IRS. Penalty amounts depend on how late you filed and whether errors were intentional. You can contest penalties by demonstrating reasonable cause, but the burden of proof is on you.

Refund Claims

Recipients may file claims for refunds of over-withheld taxes. The IRS will verify these claims against the Forms 1042-S you filed. If your forms contained errors, the IRS may deny the recipient's claim, potentially creating disputes or requiring you to file amended forms.

FAQs

1. What's the penalty if I file Form 1042-S late?

Penalties escalate based on how late you file. If you file within 30 days after March 15, 2018, it's $50 per form (maximum $536,000 annually; $187,500 for small businesses). File between 31 days late and August 1, and it jumps to $100 per form (maximum $1,609,000; $536,000 for small businesses). After August 1 or not filing at all costs $260 per form (maximum $3,218,500; $1,072,500 for small businesses). Intentionally disregarding the rules? You'll pay the greater of $530 per form or 10% of the reportable amount, with no maximum penalty.

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

Yes! You must file even if the income was exempt from withholding due to a tax treaty, was effectively connected with a U.S. trade or business, or the tax was released to the recipient. The only exceptions are specific situations listed in the IRS instructions under "Amounts That Are Not Subject to Reporting on Form 1042-S."

3. Can foreign students use Form 1042-S on their tax returns?

Absolutely. Foreign students who received scholarships, fellowships, or compensation for services typically receive Form 1042-S (often with income code 16 for scholarships or code 18 for compensation). They use this form to prepare Form 1040-NR (U.S. Nonresident Alien Income Tax Return), reporting the income and claiming credit for any tax withheld.

4. What if I discover an error months after filing?

File an amended Form 1042-S as soon as you discover the mistake. Use the same unique form identifier as the original, check the "Amended" box, and enter the amendment number (1 for the first amendment). Complete the form with all correct information—not just the changes—and submit it with Form 1042-T (if filing on paper). Provide a copy to the recipient and, if necessary, amend your Form 1042.

5. Do I need separate forms for different types of income paid to the same person?

Yes. Each income type (determined by the income code) requires a separate Form 1042-S, even if paid to the same recipient. For example, if you paid a foreign person both royalties (code 15) and personal services compensation (code 18), you'd file two separate forms.

6. What's the difference between Form 1042-S and Form 1042?

Form 1042-S is an information return reporting specific payments to individual recipients (like a 1099). Form 1042 is your annual withholding tax return that summarizes all the tax you withheld for the year (like Form 941 for employment taxes). You must file both: individual Forms 1042-S for each recipient and one Form 1042 summarizing your total withholding.

7. How do I know if I'm a "financial institution" required to e-file?

A financial institution, for these purposes, is defined in IRS Regulations section 1.1471-5(e) and generally includes entities that maintain financial accounts, hold financial assets for customers, or engage in certain investment activities. Common examples include banks, credit unions, brokerage firms, investment companies, and insurance companies offering cash-value products. If you're unsure, consult the regulations or a tax professional—misclassifying your entity and filing on paper when e-filing is required can trigger penalties.

Additional Resources

IRS Publication 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities)
IRS Publication 1187 (Electronic Filing Specifications)
FIRE System for Electronic Filing

This summary is based on IRS.gov official sources for the 2017 tax year and is intended for general informational purposes. For specific tax situations, consult the official IRS instructions or a qualified tax professional.