Form 1042-S: Foreign Person's U.S. Source Income Subject to Withholding (2022)

What the Form Is For

Form 1042-S is an information return used by U.S. withholding agents to report income paid to foreign persons and the amount of tax withheld on that income. Think of it as the international cousin of the 1099 forms you might be familiar with—but specifically for payments made to people and entities outside the United States.

The form serves three primary purposes. First, it reports U.S. source income paid to foreign individuals and businesses subject to withholding under Chapter 3 of the Internal Revenue Code. This includes common income types like dividends, interest, royalties, rents, and compensation for services. Second, it reports withholdable payments under the Foreign Account Tax Compliance Act (FATCA or Chapter 4), which targets offshore tax evasion. Third, it documents specialized payments such as federal procurement payments to foreign persons under section 5000C and distributions from publicly traded partnerships.

Who needs to file this form? Any “withholding agent”—which the IRS defines broadly as any person or entity (U.S. or foreign) that has control, receipt, or custody of income subject to withholding and can disburse or make those payments. This typically includes U.S. businesses paying foreign contractors, financial institutions paying interest or dividends to foreign account holders, universities paying stipends to foreign scholars, and brokers handling investments for foreign clients. Even if no tax was actually withheld—perhaps due to a tax treaty exemption or because the income was effectively connected to a U.S. trade or business—the form generally must still be filed.

According to the IRS instructions, Form 1042-S provides crucial documentation that foreign recipients need to claim refunds or credits on their home country tax returns or their U.S. tax returns (if they're required to file one). The form is essentially proof that U.S. taxes were withheld from their income, which prevents double taxation under many tax treaties. IRS.gov

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

For the 2022 tax year, Form 1042-S had a firm deadline: March 15, 2023. This was the date by which withholding agents needed to both file the form with the IRS and furnish copies to the foreign recipients. The deadline applies to income paid during the 2022 calendar year, regardless of when services were performed or when the income was earned.

Extension Requests

If you needed more time, you could 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 needed even more time beyond that initial 30 days, you could submit a second Form 8809 before the first extension expired. The IRS notes in Publication 1187 that electronic filers can submit extension requests through the FIRE System rather than paper forms.

Late Filing

Missing the deadline triggers escalating penalties. If you file within 30 days late, the penalty is $50 per form. File between 31 days late and August 1, and it increases to $110 per form. After August 1 or if you never file correct forms, the penalty jumps to $290 per form. These penalties have annual caps—$588,500 for regular businesses and $206,000 for small businesses (defined as having average annual gross receipts of $5 million or less over the prior three years).

Amended Returns

You must file an amended Form 1042-S if you discover errors after filing. Mark the “Amended” box on the form and complete all sections with corrected information. There's no separate deadline for amended returns per se, but the instructions note that certain correction procedures (like reimbursement for overwithholding) have time limits. Importantly, you need to furnish corrected copies to recipients as well, and the penalties for failing to furnish correct recipient statements mirror those for the IRS copies. IRS.gov

The 2022 instructions also emphasized that financial institutions must file electronically regardless of how many forms they're filing, and any filer submitting 250 or more Forms 1042-S must file electronically. This electronic filing requirement applies separately to original and amended returns. IRS.gov

Key Rules for 2022

The 2022 version of Form 1042-S included several important updates and continuing requirements:

New for 2022

The IRS introduced Chapter 3 status code 38 to report payments to or from publicly traded partnerships (PTPs). Income code 56 was added for section 871(m) transactions resulting from combined transactions. Income code 57 was added for brokers reporting transfers of PTP interests under section 1446(f), which generally requires 10% withholding on amounts realized when non-U.S. persons sell partnership interests. Additionally, Box 12f now requires filers to enter “US” as the country code when the withholding agent is a U.S. person or foreign branch of a U.S. person. IRS.gov

Unique Form Identifier

Every Form 1042-S must have a unique 10-digit numeric identifier at the top. This number helps track corrections and amendments when multiple forms exist for the same recipient. You can reuse the same identifier for a new form in a subsequent year, but it must be unique within the current year's filings.

Withholding Rates

Standard withholding rates remained 30% for most foreign persons on U.S. source FDAP (Fixed, Determinable, Annual, or Periodical) income, though treaty rates often reduce this. For PTPs distributing effectively connected income, the rate was 21% for corporate partners and 37% for all other partners. Qualified investment entities distributing U.S. real property gains faced a 21% withholding rate.

Electronic Filing Threshold

The 250-form threshold continued for 2022, with financial institutions required to file electronically regardless of volume.

No Zero Amounts

A critical rule is that Box 2 (gross income) cannot be zero. If there's no actual payment or if the amount is truly zero, you generally shouldn't file the form unless specific circumstances require it.

Required Boxes

At minimum, you must complete the unique form identifier and boxes 1, 2, 3, 7a, 12a-d, 12f, 12h-i, and 13a-d. Additional boxes become mandatory depending on whether the payment is a withholdable payment under Chapter 4, whether treaty benefits are claimed, and the recipient's status. IRS.gov

Step-by-Step (High Level)

Step 1: Gather Recipient Documentation

Before you can complete Form 1042-S, you need proper documentation from the foreign recipient. This typically means collecting Form W-8BEN (for individuals), W-8BEN-E (for entities), or other appropriate W-8 forms. These forms establish the recipient's foreign status, country of tax residence, and any treaty benefits they're claiming.

Step 2: Calculate the Correct Amounts

Determine the gross income paid (Box 2), any exemptions or treaty reductions, and the federal tax withheld (Box 7a). You need to identify the correct income code (Box 1) that matches the payment type—there are dozens of codes ranging from interest (01) to scholarships (16) to gross proceeds from PTP transfers (57).

Step 3: Determine Status and Exemption Codes

Assign the appropriate Chapter 3 status code (Box 13f) and Chapter 4 status code (Box 13g) if applicable. If no withholding occurred, provide the exemption code explaining why (Box 3a for Chapter 3, Box 4a for Chapter 4). This is where many errors occur—using the wrong code or leaving required codes blank.

Step 4: Complete All Required Information

Fill in your information as the withholding agent (Boxes 12a-i), including your EIN and address. Complete recipient information (Boxes 13a-e, 13h), including name, address, country code, and TIN or GIIN if available. If there's an intermediary involved, complete Box 15 as well.

Step 5: Assign the Unique Form Identifier

Create and record a 10-digit unique numeric identifier for this form. Keep a record linking this identifier to the specific recipient and payment.

Step 6: File with the IRS and Furnish to Recipient

If filing electronically (via the FIRE System at fire.irs.gov), upload your forms by March 15. Include Form 1042-T (transmittal) with your electronic submission. If filing on paper (fewer than 250 forms and you're not a financial institution), send Copy A with Form 1042-T to the IRS address specified in the Form 1042-T instructions. Furnish Copies B, C, and D to the recipient by March 15 as well—they need these for their own tax reporting.

Step 7: File Form 1042

Don't forget—filing Form 1042-S also requires filing Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons), which summarizes all your Forms 1042-S and reconciles withheld amounts with deposits made. IRS.gov

Common Mistakes and How to Avoid Them

The IRS identified numerous common errors in its 2022 instructions and related guidance. Here are the most frequent pitfalls:

Missing required fields: The single most common error is leaving mandatory boxes blank. Every form needs the unique identifier, income code (Box 1), gross income (Box 2), exemption code (Box 3a), recipient name and address (Boxes 13a-d), chapter 3 and/or 4 status codes, and withholding agent information. Electronic submissions are automatically rejected for missing required fields; paper returns generate penalty notices. How to avoid: Create a checklist of all required boxes based on your payment type and double-check before filing.
Listing multiple recipients in Box 13a: For joint owners or multiple payees, you can only list one recipient per Form 1042-S. If income was paid to joint account holders, you must choose one as the recipient for reporting purposes. How to avoid: Designate one person as the primary recipient in your records and use that person consistently.
Reporting zero in Box 2: Gross income cannot be zero. If you didn't actually make a payment, don't file the form (with rare exceptions). How to avoid: Review your payment records and only generate forms for actual payments made during 2022.
Using incorrect income codes: The income code must accurately reflect the payment type. Using a generic code when a specific one exists, or misclassifying the income entirely, causes processing delays and penalties. How to avoid: Review the comprehensive income code list in the instructions and consult with a tax professional if you're uncertain.
Wrong or missing country codes: Boxes 13b and 15f require valid two-letter country codes from the IRS list at IRS.gov/CountryCodes. Don't use “US” for recipients (unless it's a U.S. branch in specific circumstances), and avoid placeholder codes like “OC” or “UC” except where explicitly permitted. How to avoid: Verify country codes against the official IRS list before filing.
Mismatch between copies: The copies furnished to recipients must exactly match Copy A filed with the IRS. Any discrepancies cause problems when recipients file their returns and claim withholding credits. How to avoid: Generate all copies simultaneously from the same data source and verify they're identical before distribution.
Missing TINs and GIINs: When recipients have provided U.S. taxpayer identification numbers (TINs) or Global Intermediary Identification Numbers (GIINs), you must include them. Leaving these blank when they're available or required triggers penalties. How to avoid: Maintain complete files of recipient documentation and transfer all available identification numbers to the forms.
Electronic filing failures: Filers required to file electronically who submit paper forms face penalties unless they've received a hardship waiver (Form 8508). How to avoid: Count your forms early in the year and plan for electronic filing if you'll exceed 249 forms or if you're a financial institution. IRS.gov

What Happens After You File

IRS Processing

The IRS processes your Forms 1042-S and matches them against your Form 1042 summary return. They verify that the total withholding reported on all Forms 1042-S equals the amount on Form 1042 and that deposits were made timely. Electronic submissions through the FIRE System are checked for errors within 5 business days, and you can log in to check your submission status. The IRS won't mail error reports for electronic submissions—you must check the system yourself.

Recipient Use

Foreign recipients use their copies (B, C, and D) to prepare their U.S. tax returns if they're required to file, or to claim foreign tax credits in their home countries. Form 1042-S serves as proof that U.S. taxes were withheld, preventing double taxation under tax treaties. Some recipients may discover discrepancies between what they received and what you reported, which could prompt inquiries.

Penalty Notices

If the IRS identifies errors during processing—missing required information, invalid codes, mismatches between forms, or late filing—they'll issue penalty notices. As mentioned earlier, penalties range from $50 to $290 per form depending on how late and how incorrect the filing is. These notices typically arrive several months after filing.

Audit Potential

Form 1042-S filing creates an audit trail. The IRS may examine your withholding practices, especially if patterns of errors emerge or if recipients claim credits that don't match your reported withholding.

Record Retention

You must keep copies of all filed Forms 1042-S (or be able to reconstruct the data) for at least three years after the reporting due date. The IRS can request these records during examinations of your withholding compliance.

Corrections

If you discover errors after filing, you can file amended Forms 1042-S marked “Amended” with corrected information. You must also furnish corrected copies to affected recipients. The sooner you file corrections, the lower the penalties—corrections made by August 1 face reduced penalties compared to those made after that date. IRS.gov

FAQs

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

Yes, in most cases. Even if the payment was exempt from withholding due to a tax treaty, effectively connected income status, or another exception, you still must file Form 1042-S to report the payment. You'll enter the appropriate exemption code to explain why no withholding occurred. The main exception is for individuals making payments not connected to their trade or business when no withholding was required. IRS.gov

Q2: What's the difference between Chapter 3 and Chapter 4 withholding?

Chapter 3 refers to traditional withholding on U.S. source FDAP income paid to foreign persons under sections 1441-1443 of the tax code. Chapter 4 refers to FATCA withholding on withholdable payments under sections 1471-1474, which targets offshore tax evasion. A single payment may be subject to both chapters, and Form 1042-S requires you to indicate which applies using the appropriate status and exemption codes. IRS.gov

Q3: Can I truncate taxpayer identification numbers on recipient copies?

Yes. You may truncate recipients' Social Security numbers, individual taxpayer identification numbers, or employer identification numbers on Copies B, C, and D by showing only the last four digits (e.g., XXX-XX-1234). However, you must NOT truncate TINs on Copy A filed with the IRS, and you cannot truncate the withholding agent's EIN on any copy. IRS.gov

Q4: What if the recipient provided documentation but doesn't have a U.S. TIN?

That's acceptable in many situations. You can still file the form using the recipient's name, address, and country of residence. If the recipient has a foreign tax identification number (FTIN), you can include it in Box 13i. Not having a U.S. TIN doesn't prevent filing, though it may affect the recipient's ability to claim certain treaty benefits. IRS.gov

Q5: How do I request a waiver from electronic filing requirements?

File Form 8508 (Request for Waiver From Filing Information Returns Electronically) at least 45 days before the due date of your returns. You must demonstrate undue hardship—typically that electronic filing would be cost-prohibitive or technologically impossible given your circumstances. Simply preferring paper filing isn't sufficient grounds for a waiver. IRS.gov

Q6: What should I do if I made multiple payments of different income types to the same recipient?

File a separate Form 1042-S for each type of income, as determined by the income code. For example, if you paid a foreign contractor both compensation for services (income code 17) and royalties (income code 12), you'd file two separate forms. Financial institutions must also file separate forms for each financial account held by the same recipient. IRS.gov

Q7: Where can I find the official income code list and other code tables?

All code lists—income codes, chapter 3 and 4 status codes, exemption codes, country codes, and limitation on benefits (LOB) codes—are in the Instructions for Form 1042-S, available at IRS.gov/Form1042S. The country code list is also maintained separately at IRS.gov/CountryCodes. Make sure you're using the 2022 version of the instructions, as codes change periodically. IRS.gov

This summary provides general information about Form 1042-S based on 2022 IRS instructions and should not be construed as tax advice. For specific situations, consult a qualified tax professional or contact the IRS Information Reporting Program at 866-455-7438.