Form 1042 (2011) Filing Checklist
Purpose
Form 1042 reports annual federal tax withholding on U.S.-source income paid to foreign persons. For 2011, withholding agents must account for monthly tax liability using specific weekly or biweekly period schedules and track Forms 1042-S, filed either by paper or electronic submission methods.
Filing Steps
Step 1: Confirm Withholding Agent Status and Enter EIN
Identify your withholding agent classification per 2011 instructions: Qualified Intermediary (QI), Withholding Foreign Partnership (WP), Withholding Foreign Trust (WT), Nonqualified Intermediary (NQI), or flow-through entity. Enter your EIN on the form. If you are a QI, WP, or WT, enter your QI-EIN, WP-EIN, or WT-EIN and check the appropriate box. This classification determines your primary withholding responsibility and reporting obligations under Chapter 3 rules.
Step 2: Record Tax Liability by Period
Enter federal tax liability for each calendar week or biweekly period ending on the dates shown in lines 1-60. Include withholding under section 1441 for payments to foreign persons and section 1446 tax for publicly traded partnerships distributing effectively connected income to foreign partners. Do not include any negative amounts on these lines.
Step 3: Report Excise Tax on Federal Procurement Payments
For contracts entered into after January 1, 2011, include on lines 1-60 the 2% excise tax on specified federal procurement payments made to foreign persons. Report this tax on the line corresponding to the payment date. Calculate the total excise tax and enter it separately on line 71.
Step 4: Calculate Monthly Totals
Sum the period-ending liability entries for each month and enter totals on lines 5, 10, 15, 20, 25, 30, 35, 40, 45, 50, 55, and 60. Verify these totals align with your withholding records and deposit documentation.
Step 5: Determine Total Tax Liability
Add all monthly totals and enter the sum on line 63a (Total tax liability). On line 63b, enter any adjustments for underwithheld tax on corporate distributions if the distributing corporation made a reasonable estimate of earnings and profits and paid the underwithheld amount by March 15, 2012. Combine lines 63a and 63b to determine your total net tax liability on line 63c.
Step 6: Report Electronic Funds Transfer Payments
Enter total Electronic Federal Tax Payment System (EFTPS) deposits made during 2011 on line 64, including amounts paid with an extension request. EFTPS is mandatory for all Form 1042 deposits. Do not include Form 941, Form 945, or other employment tax deposits.
Step 7: Enter Prior Year Credit
Report any overpayment credit applied from your 2010 Form 1042 on line 65. Verify this amount matches your prior-year closing balance to avoid duplicate claims or IRS correspondence.
Step 8: Claim Credit for Other Withholding Agents
On line 66, enter amounts withheld by other withholding agents that relate to your total net tax liability. This applies when you are a QI and U.S. withholding agents withheld on your behalf. Support this credit with copies of Form 1042-S issued to you. Attach these supporting forms to verify credit amounts claimed; failure to do so will result in the denial of refund or credit.
Step 9: Calculate Balance Due or Overpayment
Add lines 64, 65, and 66 to determine total payments on line 67. If line 63c exceeds line 67, enter the balance due on line 68. If line 67 exceeds line 63c, enter the overpayment on line 69 and check whether you want a refund or a credit applied to your 2012 Form 1042 on line 70.
Step 10: Report Forms 1042-S Count
Enter the number of Forms 1042-S filed on line 61, separated by paper filings (61a) and electronic filings (61b). If you file 250 or more Forms 1042-S, electronic filing is required. File Form 1042 even if you submit Forms 1042-S electronically.
Step 11: Enter Gross Income and Taxes Withheld
On line 62a, enter the sum of all amounts shown on Form 1042-S box 2 (gross income paid) and all gross interest paid on Form 1000 (Ownership Certificates for pre-1934 bond interest with tax-free covenants). On line 62b, enter total taxes withheld or assumed from all Forms 1042-S and Forms 1000. Reconcile these amounts with Form 1042 totals to avoid IRS correspondence.
Step 12: Complete Third-Party Designee Section
If you want to authorize another person to discuss your 2011 Form 1042 with the IRS, check “Yes” in the Third Party Designee section. Enter the designee’s name, phone number, and a five-digit personal identification number (PIN). This authorization allows the designee to answer questions and exchange information about your return, but does not authorize them to receive refund checks or represent you before the IRS. The authorization expires one year from the due date.
Step 13: Sign and Date Under Penalties of Perjury
The withholding agent must sign and date Form 1042 under penalties of perjury. Please print your title (e.g., Officer, Employee, Agent) and provide a daytime phone number. If a paid preparer completes the form, they must sign, date, and provide their PTIN, firm information, and contact details.
Step 14: Assemble and Submit Return
Gather Form 1042, all monthly working papers, Forms 1042-S (paper copies with Form 1042-T transmittal form), withholding documentation, and any attachment schedules. Do not attach Form 1000 to Form 1042; keep them for your records for at least four years. Mail the complete packet to the IRS Ogden Service Center, P.O. Box 409101, Ogden, UT 84409, by March 15, 2012.
Step 15: Maintain Records and Documentation
Retain all Forms 1042-S, Forms 1000, deposit confirmations, and supporting withholding documentation for at least four years after the end of the calendar year in which income was paid. Keep records of any adjustments for overwithholding, reimbursement procedures, and correspondence with recipients and the IRS.
Key 2011-Specific Considerations
Line 61 Reporting Requirements
Line 61 requires a separate enumeration of Forms 1042-S filed on paper versus electronically. This split accommodates the 2011 filing environment, where electronic filing was only needed for withholding agents filing 250 or more forms, while smaller filers could use paper submission.
Section 5000C Excise Tax Implementation
The 2% excise tax on specified federal procurement payments (Section 5000C) was newly enacted, effective January 2, 2011, under the James Zadroga 9/11 Health and Compensation Act of 2010. This tax applies to payments made under contracts entered into after January 1, 2011, for goods manufactured or services provided in countries that are not parties to international procurement agreements with the United States. Report the tax liability for the period in which the payment was made, and separately on line 71.
Qualified Intermediary Status and Backup Withholding
QIs withholding under Chapter 3 rules have distinct liability reporting requirements compared to NQIs. QIs with no primary withholding responsibility must enter amounts withheld by U.S. withholding agents on line 59, while reporting amounts they actually withheld on the line corresponding to when liability was incurred. The 2011 instructions clarify coordination between QI status and backup withholding obligations.
Foreign Partners of U.S. Partnerships
Domestic partnerships should not include tax liability on lines 1-60 for undistributed foreign partner distributive shares in the year the partnership earns the income. Instead, report the liability in the following year on the line representing the earlier of the date Schedule K-1 (Form 1065) was sent to the foreign partner, or the due date for furnishing Schedule K-1.
Deposit Requirements and EFTPS
All deposits must be made through the Electronic Federal Tax Payment System (EFTPS). Deposit frequency depends on undeposited tax amounts: $2,000 or more requires a deposit within three business days after the quarter-monthly period ends; $200 to $1,999 requires a deposit within 15 days after the month-end; and less than $200 at year-end may be paid with Form 1042 or deposited by March 15, 2012.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
