Form 1042-S: Foreign Person's U.S. Source Income Subject to Withholding (2023)

Navigating international tax forms can feel overwhelming, but understanding Form 1042-S is essential for anyone paying U.S. income to foreign persons or receiving such income as a non-resident. This guide breaks down everything you need to know about the 2023 version of this critical tax document in plain English.

What Form 1042-S Is For

Form 1042-S is an information return that reports income from U.S. sources paid to foreign persons—including non-resident aliens, foreign corporations, partnerships, and other foreign entities. Think of it as the international cousin of Form 1099, which reports payments to U.S. residents.

The form serves multiple purposes. It documents the type and amount of U.S. source income paid to foreign recipients during the calendar year, reports any federal tax withheld from those payments under Chapter 3 (traditional withholding rules) or Chapter 4 (FATCA), and helps the IRS track income flowing to foreign persons while ensuring proper tax collection. Recipients can use this form to claim refunds or tax treaty benefits when filing their U.S. tax returns. IRS.gov

Common situations requiring Form 1042-S include scholarship or fellowship payments to foreign students, royalty payments to foreign authors or inventors, dividend and interest payments to foreign investors, rental income paid to foreign property owners, compensation for independent contractor services performed in the U.S., and distributions from publicly traded partnerships to foreign partners. IRS.gov

The form must be filed even when no tax was withheld—for instance, when income qualifies for a tax treaty exemption or when the payment is effectively connected with a U.S. trade or business. This reporting requirement ensures transparency in cross-border payments and helps both the IRS and foreign tax authorities monitor international income flows.

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

Standard Filing Timeline

For the 2023 tax year, Form 1042-S must be filed with the IRS by March 15, 2024. The same deadline applies to furnishing copies to recipients—the foreign persons who received the payments. This deadline is firm and applies whether you're filing electronically or on paper. IRS.gov

Extensions

If you need more time, 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. A second 30-day extension may be granted in exceptional circumstances. Extensions to provide recipient copies require a separate written request submitted by fax to the IRS Technical Services Operation. IRS.gov

Late Filings

Life happens, and sometimes forms are filed late. However, late filing carries penalties that escalate based on how late you are. If you're 1-30 days late, the penalty is $60 per form. For 31 days late through August 1, it increases to $130 per form. After August 1 or if you don't file at all, the penalty jumps to $310 per form. If the IRS determines you intentionally disregarded filing requirements, penalties can reach $630 per form with no maximum cap. IRS.gov

Amended Returns

Mistakes happen, and the IRS provides a process for corrections. To amend a Form 1042-S, check the "Amended" box on the form and enter an amendment number in the designated field. Complete the entire form with corrected information—you cannot file just the changed portions. Each amended return must include a unique 10-digit identifying number that corresponds to the original form being corrected. File the amended form using the same method (electronic or paper) as your original submission, and provide corrected copies to recipients so their tax returns reflect accurate information. IRS.gov

Key Rules and Requirements for 2023

Who Must File

Every withholding agent must file Form 1042-S. A withholding agent is any person or entity (U.S. or foreign) that has control, receipt, or custody of U.S. source income paid to foreign persons. This includes businesses, financial institutions, universities, partnerships, trustees, and even individuals making payments as part of their trade or business. IRS.gov

Electronic Filing Requirements

For 2023 returns, electronic filing is mandatory if you're filing 250 or more Forms 1042-S or if you're a financial institution (regardless of the number of forms). All other filers are encouraged but not required to file electronically. Electronic submissions use the Filing Information Returns Electronically (FIRE) System at fire.irs.gov. IRS.gov

New Rules for 2023

The 2023 tax year introduced significant changes related to publicly traded partnerships (PTPs). New income code 57 was added for brokers to report amounts realized and withholding from transfers of PTP interests under section 1446(f). Income code 58 was added for nominees unable to determine income characterization from PTP distributions. Chapter 3 status code 39 was introduced for payments to Qualified Intermediaries (QIs) acting as disclosing QIs. PTPs and brokers can now use reimbursement and set-off procedures for sections 1446(a) and (f) withholding adjustments. IRS.gov

Unique Form Identifier Requirement

Each Form 1042-S must have a unique 10-digit identifying number. This number cannot be the recipient's Tax Identification Number (TIN) or Foreign Tax Identification Number (FTIN). It's used to track corrections and amendments and must be unique within each tax year. IRS.gov

Withholding Rates

Understanding current withholding rates is crucial. The standard withholding rate for most U.S. source FDAP (Fixed, Determinable, Annual, or Periodical) income paid to foreign persons is 30%, though this may be reduced by tax treaties. For PTP distributions under section 1446, the rate is 21% for corporate partners and 37% for all other partners. QIE distributions treated as U.S. real property interest gains are withheld at 21%. IRS.gov

Step-by-Step (High Level)

Step 1: Determine Your Obligation

First, confirm whether you're a withholding agent who made payments to foreign persons during 2023. Review all payments to identify which ones constitute U.S. source FDAP income. Remember that you must file even if no tax was withheld due to treaty exemptions or other exclusions.

Step 2: Gather Required Information

Collect documentation including recipient information (name, address, country of residence, TIN or FTIN), documentation of foreign status (Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, W-8IMY), payment details (amounts paid, dates, income types), withholding calculations and actual amounts withheld, and tax treaty claims if applicable.

Step 3: Prepare Separate Forms

You must prepare a separate Form 1042-S for each recipient, for each type of income (identified by income code), and for each tax rate applied. For example, if you paid the same person both dividends and royalties, you need two separate forms.

Step 4: Complete the Form

Fill in all required boxes including income code (Box 1), gross income (Box 2), chapter indicators and withholding rates (Boxes 3-4), amounts withheld (Boxes 7-11), withholding agent information (Boxes 12a-12i), recipient information (Boxes 13a-13k), intermediary or flow-through entity information if applicable (Boxes 15a-15i), and payer information for certain transactions (Boxes 16a-16e). IRS.gov

Step 5: File with the IRS

If filing electronically (required for 250+ forms or financial institutions), submit through the FIRE System by March 15, 2024. If filing on paper, prepare Form 1042-T (Annual Summary and Transmittal) and mail all forms together to the address specified in the Form 1042-T instructions by March 15, 2024.

Step 6: Provide Recipient Copies

Furnish Copies B, C, and D to each recipient by March 15, 2024. Recipients need these forms to file their U.S. tax returns and potentially claim refunds or treaty benefits. Retain Copy E for your records for at least three years.

Step 7: File Form 1042

Remember that Form 1042-S cannot be filed alone—you must also file Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons) by March 15, 2024, summarizing all withholding activity. IRS.gov

Common Mistakes and How to Avoid Them

Missing Required Fields

One of the most common errors is leaving required boxes blank. Double-check that all mandatory fields contain valid entries, including TINs, addresses, income codes, and withholding information. Use the instructions as a checklist before submitting. IRS.gov

Multiple Recipients in One Form

Never list more than one recipient in Box 13a. Each recipient must receive their own Form 1042-S, even if they received the same type of income. Combine multiple recipients only when reporting to intermediaries or flow-through entities using pooled reporting methods.

Invalid Income Codes or Status Codes

Using incorrect or outdated income codes and chapter status codes is a frequent problem. Consult the most current instructions for 2023-specific codes, paying special attention to new codes 57, 58, and 39 introduced this year. Each income type has a specific code—using the wrong one can mischaracterize the payment. IRS.gov

Incorrect Withholding Calculations

Mathematical errors in calculating withholding amounts cause significant problems. Verify that withholding rates match the recipient's status and any applicable treaty rates. Ensure that amounts in Boxes 7-11 reconcile with gross income reported in Box 2. For treaty-based rate reductions, confirm proper documentation (Form W-8BEN or W-8BEN-E) was obtained before applying reduced rates.

TIN Issues

Recipient TINs must be accurate and properly formatted. Do not truncate TINs on Copy A filed with the IRS—truncation is only permitted on recipient copies. Verify TINs against recipient documentation. Missing or incorrect TINs can lead to backup withholding requirements and processing delays. IRS.gov

Mismatched Copies

All copies of Form 1042-S (Copy A filed with IRS and Copies B, C, D provided to recipients) must be identical. Discrepancies between the form filed with the IRS and the copy the recipient attaches to their tax return will cause the IRS to reject refund claims and delay processing. Always generate all copies from the same data source. IRS.gov

Wrong Data for PTP Reporting

With new PTP rules in 2023, ensure you're using the correct payer information in Boxes 16a-16e when reporting PTP distributions or transfers. Use appropriate income codes (27, 57, or 58) and include chapter 3 status code 38 for PTPs. IRS.gov

Prevention Strategy

Implement a quality control process: verify all source documentation before preparing forms, use current year forms and instructions, employ tax software that supports Form 1042-S with built-in validation, conduct a peer review before filing, and maintain organized records of all withholding documentation.

What Happens After You File

IRS Processing

After you submit Form 1042-S, the IRS processes the information and matches it against Forms 1042 that summarize your total withholding. Electronic submissions are processed faster than paper filings. The IRS uses this data to verify that recipients accurately report their U.S. income and to ensure proper tax collection from foreign persons receiving U.S. income.

Recipient Use

Recipients use Form 1042-S when filing their U.S. tax returns (typically Form 1040-NR for non-resident alien individuals). They claim credit for tax withheld as reported on the form and may claim refunds if over-withheld or if treaty benefits weren't properly applied at the time of payment. The form also provides documentation for foreign tax credit claims in their home countries.

IRS Verification and Matching

The IRS conducts matching programs to ensure reported amounts align across forms. They compare Forms 1042-S with Forms 1042 to verify total withholding reported matches individual payment reports. They cross-reference recipient-filed tax returns with Forms 1042-S to confirm income is properly reported. Discrepancies trigger IRS inquiries, which can lead to audits, requests for additional documentation, or adjustments to refund claims.

Notices and Corrections

If the IRS identifies errors or discrepancies, you may receive notices requesting clarification or correction. Common notices include CP2100/CP2100A for TIN/name mismatches, requests for missing forms or information, and penalty assessments for late or incorrect filing. Respond promptly to any IRS correspondence and provide requested documentation within stated deadlines. If you discover errors after filing, submit amended forms as described earlier.

Record Retention

Maintain copies of all filed Forms 1042-S and supporting documentation for at least three years from the filing due date. This period covers the typical IRS audit window. Keep recipient Forms W-8 series and other foreign status documentation, payment records and withholding calculations, proof of filing (electronic confirmation or mailing receipts), and correspondence with the IRS or recipients.

Refund Claims

Recipients may file for refunds based on Form 1042-S information. The IRS may contact you to verify information on forms supporting refund claims. Ensure your records can substantiate reported amounts and withholding. Inaccurate forms can result in denied refunds for recipients and potential liability for you.

FAQs

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

Yes. You must file Form 1042-S whenever you make a reportable payment to a foreign person, regardless of whether tax was withheld. This includes situations where income is exempt under a tax treaty, income is effectively connected with a U.S. trade or business, or the payment type doesn't require withholding. The form documents the payment was made and reports the reason for no withholding (such as treaty exemption codes). IRS.gov

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

Form 1042-S is an information return reporting specific payments to individual foreign recipients—similar to how Form 1099 works for U.S. persons. Form 1042 is the withholding agent's tax return summarizing total withholding activity for the year—similar to how Form 941 works for employment taxes. You must file both: Form 1042 summarizes all your withholding, while individual Forms 1042-S provide details for each recipient. Both are due March 15 of the year following the payment year. IRS.gov

Q3: I received a Form 1042-S. What should I do with it?

If you're a foreign person who received Form 1042-S, you should report the income on your U.S. tax return (typically Form 1040-NR for individuals), claim credit for any tax withheld shown on the form, review whether you're entitled to additional refunds or treaty benefits, and keep the form with your tax records. You may need to attach it to your return or provide it to tax authorities in your home country for foreign tax credit purposes. If the information appears incorrect, contact the withholding agent (the entity that issued the form) immediately.

Q4: Can I correct a Form 1042-S after filing?

Yes. File an amended Form 1042-S by checking the "Amended" checkbox and completing all boxes with corrected information. Assign an amendment number and use the same unique form identifier as the original. File the amended form electronically if you filed the original electronically. Provide corrected copies to the recipient so they can amend their tax return if necessary. Also file an amended Form 1042 if the corrections affect totals reported there. The sooner you file corrections, the better—especially before recipients file their tax returns. IRS.gov

Q5: How do tax treaties affect Form 1042-S reporting?

Tax treaties between the U.S. and other countries often reduce withholding rates on certain types of income. To claim treaty benefits, recipients must provide you with a properly completed Form W-8BEN (for individuals) or W-8BEN-E (for entities) claiming specific treaty provisions. When treaty benefits apply, you report the reduced withholding rate in Box 4a and enter the appropriate exemption code in Box 3b. You must still file Form 1042-S showing the gross income, the reduced rate applied, and the treaty-based exemption code. Keep documentation of the treaty claim in your records. IRS.gov

Q6: What penalties apply for not filing or filing incorrectly?

Penalties escalate based on the severity and timing of the violation. Failure to file on time results in $60 per form if 30 days or less late, $130 per form if 31 days to August 1 late, or $310 per form if filed after August 1 or not filed at all. Intentional disregard of filing requirements can result in penalties of at least $630 per form with no maximum limit. Additional penalties may apply for failing to furnish recipient copies or for incorrect information. To avoid penalties, file timely, ensure accuracy before submitting, request extensions when needed, and correct errors promptly when discovered. IRS.gov

Q7: Do payments to foreign employees require Form 1042-S?

Generally, no. Wages paid to foreign employees (compensation for dependent personal services) are typically reported on Form W-2, not Form 1042-S, even if the employee is a non-resident alien. However, Form 1042-S is required for scholarships, fellowships, or grants paid to foreign students, compensation for independent contractor services (non-employee compensation), and payments to foreign employees when claiming treaty benefits on those payments. Always determine the proper characterization of the payment—employee wages versus independent contractor fees—as this affects both withholding rates and reporting forms. IRS.gov

Conclusion

Form 1042-S plays a vital role in the U.S. tax system's framework for monitoring and taxing income paid to foreign persons. While the form may seem complex, understanding its purpose, requirements, and procedures makes compliance manageable. The 2023 tax year brought important changes, particularly regarding publicly traded partnerships, making it essential to use current instructions and stay informed about updates.

Whether you're a withholding agent responsible for filing or a foreign person receiving the form, accuracy and timeliness are paramount. Take advantage of electronic filing options, maintain thorough documentation, and don't hesitate to consult tax professionals for complex situations. By following the guidelines outlined in this summary, you'll navigate Form 1042-S requirements with confidence and minimize the risk of penalties or processing delays.

For the most current information, official forms, and detailed technical guidance, always refer to IRS.gov/Form1042S and consult Publication 515, "Withholding of Tax on Nonresident Aliens and Foreign Entities."

This guide is based on IRS publications and guidance available as of the 2023 tax year. Tax rules and forms are subject to change. For specific situations, consult a qualified tax professional or contact the IRS Information Reporting Program at 866-455-7438 (toll-free).