What Form 1042-S Is For
Form 1042-S (2022) is an IRS information return used to report income paid to foreign persons that is subject to U.S. withholding tax. It covers payments such as dividends, interest, rents, royalties, and service fees made to nonresident aliens, foreign corporations, and other non-U.S. entities. A withholding agent, such as a U.S. business, university, or financial institution, is required to file the form to report these payments.
Recipients use Form 1042-S to verify the income reported and claim any foreign tax credit or treaty benefits on their federal income tax return, thereby helping to prevent double taxation under U.S. tax treaties. Visit our IRS Form Help Center to learn which additional forms may be required when reporting U.S.-source payments to foreign individuals or entities.
When You’d Use Form 1042-S
You must file IRS Form 1042-S (2022) anytime you pay U.S.-source income to a foreign person or entity, even if no tax was withheld. This list includes payments made by withholding agents such as businesses, financial institutions, or universities during the 2022 tax year.
Key situations when the form applies include:
- Payments to nonresidents or foreign corporations: This type of revenue includes income like interest, dividends, royalties, rent, or compensation for services.
- Income exempt under a tax treaty: Even when no tax is withheld, the income must still be reported to comply with IRS rules.
- Amended or corrected filings: If errors occur after filing, you must submit a corrected form marked “Amended.”
The due date for the 2022 filing was March 15, 2023. Filers can request an extension using Form 8809; however, submitting late or incorrect forms may result in withholding tax penalties from the Internal Revenue Service. Explore Business Tax Relief resources for companies managing complex withholding rules, foreign recipient reporting, and treaty-based claims.
Key Rules and Details for 2022
For the 2022 tax year, the Internal Revenue Service (IRS) updated several rules for Form 1042-S to improve accuracy in reporting source income subject to withholding. These changes applied to withholding agents, foreign financial institutions, and others required to report payments to non-U.S. recipients.
Key updates included:
- New income and status codes: Codes 56 and 57 were added for specific payment types, and Chapter 3 status code 38 was introduced for foreign partnerships and publicly traded partnerships.
- Electronic filing requirement: Anyone submitting 250 or more tax forms must file electronically through the IRS FIRE System.
- Withholding obligations: The standard 30% rate still applies unless reduced by claiming treaty benefits under an agreement with a foreign country.
- Unique identifier rule. Each Form 1042-S must include a 10-digit identifier to facilitate tracking corrections.
- Annual reporting: All withholding agents must file a yearly withholding tax return (Form 1042) to reconcile income subject to U.S. tax under Chapters 3 and 4, ensuring the correct tax liability is reported.
Step-by-Step Filing Process (High Level)
- Confirm who you paid and what you paid: Identify each nonresident alien individual, foreign partnership, foreign government, or foreign estate, and classify the income earned—such as dividends paid, interest paid, or self-employment income—as income subject to withholding or effectively connected income.
- Collect recipient documentation: Obtain the appropriate W-8 from account holders in a foreign country or a U.S. branch, note any claiming treaty benefits, and record the correct status code and income codes for the tax year.
- Determine withholding and liability: Apply the proper tax rates under Chapters 3 and 4, calculate the tax liability, and prepare a clear withholding statement for each payee.
- Check special situations: Consider foreign-earned income, the foreign-earned income exclusion, worldwide income, and whether the payee is a bona fide resident or a resident alien.
- Complete required forms: Use Form 1042-S to report payments, and file a separate form for each income type and recipient.
- Reconcile and submit: Match totals on the annual withholding tax return (Form 1042) and follow electronic filing rules via the FIRE system.
- Retain records and verify: Maintain documentation and refer to the official instructions for Form 1042 to ensure ongoing compliance.
Common Mistakes and How to Avoid Them
Many errors on IRS Form 1042-S (2022) occur because filers miss small but critical details. These mistakes can delay processing and increase penalties, but they’re easy to prevent with careful review.
- Leaving required fields blank: Every form must include the recipient’s name, address, income code, status code, and the withholding agent’s information. Utilize a pre-filing checklist and ensure all mandatory boxes are verified before submitting. Review how the IRS Collection Process works when withholding agents face adjustments or penalties tied to incorrect Form 1042-S reporting.
- Incorrect or missing country codes: Using the incorrect foreign country code can result in mismatched records—verify codes against the current IRS country code list available at IRS.gov.
- Reporting zero income: A source of income subject to withholding cannot be listed as zero—file only for actual payments made during the tax year.
- Mismatch between copies: Differences between IRS and recipient copies create reporting conflicts. Generate all copies from one verified data file to ensure they match.
- Failing to file electronically when required: Large filers and foreign financial institutions are required to use the FIRE system. Be sure to verify your electronic filing obligations at your earliest convenience and consider applying for a waiver if you meet the eligibility criteria.
Explore payment options for withholding agents or institutions that owe additional tax after reconciling Form 1042 and Form 1042-S filings.
What Happens After You File
After you file Form 1042-S, the Internal Revenue Service reviews it for accuracy and compares it with Form 1042 under the Internal Revenue Code. The IRS checks reported amounts for both the current and preceding calendar years. If mistakes occur, penalties may apply unless you show reasonable cause instead of willful neglect. Recipients use their copies to report income based on their tax home or permanent residence, including individuals physically present in the U.S. and entities such as foreign trusts.
FAQs
Do foreign persons need to file Form 1042-S if no tax was withheld?
Yes, foreign persons must still receive Form 1042-S if they were paid income subject to U.S. withholding, even when no tax was withheld due to a treaty exemption.
How do foreign corporations report income on Form 1042-S?
Foreign corporations use Form 1042-S to show U.S.-source income received and any tax withheld. The withholding agent files the form to ensure proper credit or refund.
What is the role of a withholding agent when filing Form 1042-S?
A withholding agent—such as a business, financial institution, or university—is responsible for accurately reporting all payments made to foreign entities and ensuring correct tax rates and codes are applied.
Does the foreign earned income exclusion apply to Form 1042-S?
The foreign earned income exclusion usually applies to U.S. citizens abroad, not to payments reported on Form 1042-S. Income reported here is generally subject to withholding.
Where can I find the correct status code or instructions for Form 1042-S?
Refer to the latest instructions for Form 1042 at IRS.gov. The guide lists each status code, income code, and filing requirement for the current tax year.
